USD was the big loser of the day, as markets reposition themselves ahead of payroll on Friday. The losses came after ISM services numbers all came in lower, and particularly the prices paid component fell to a 4-year low. Fed Powell’s comments after failed to add to USD demand, despite his message implying that the Fed are happy to be data dependent before cutting rates. Overall the data and Powell's comments don’t change the rate outlook, and thus it seems the USD sell-off is more to do with profit taking, following the USD gains over the Easter weekend.
EU inflation numbers in the morning all came in marginally lower, firming up the prospect of seeing a rate cut in June, and they didn’t move the needle to suggest we could see a rate cut in April.
*Daily move - against G10 rates at 7:30am, 04.04.24
** Indicative rates - interbank rates at 7:30am, 04.04.24
Just the PMI releases from the UK and EU today to give us a gauge of how each economy performed this quarter. EU activity has been catching up to the UK’s in recent months, and unless we see a big deviation in the numbers we expect GBPEUR to remain trading within its range. The USD sell-off yesterday illustrates the sensitivity on the currency with regards to data now, but the higher rates for longer narrative continues to dictate USD demand and can be seen with markets adding to bets on further USD strength. This is seen in the Commodity Futures Trading Commission trader positions survey, showing that asset managers and hedge funds are now the most long since 2022.
So far this quarter the difference in composite PMI activity between the UK and Europe has slowly been reducing, suggesting that economy activity in Europe is catching up with the UK’s. Add this to the fact that rate cut expectations from the BoE and ECB have converged to June as well explains the reluctance in markets to push GBP higher versus the EUR. Rangebound play seems here to stay on GBPEUR.
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