Pound Sterling Ticks Over As Investors Seek Fresh Insights On BoE’s Interest Rates

Pound US Dollar exchange rate stagnant

The Pound struggles for direction today as investors await fresh guidance on Bank of England (BoE) interest rates. The GBP/USD pair trades sideways due to a quiet market of subdued sentiment. Market expectations for the BoE’s rate cuts will guide further action in the Pound Sterling. While uncertainty over the timing of BoE rate cuts continues to persist, investors hope that the Central Bank reduces interest rates in the early part of the second-half of this year. The chances for a rate cut in the June policy meeting are under 50%, while a dovish decision for August seems inevitable. Contrarily to the outlook, GBP was underpinned on Thursday by news that economic decline was showing signs of easing in the UK’s private sector. February saw the UK manufacturing sector improve, and the key UK service sector remaining in growth territory by holding at 54.3. Furthermore, analysis of private sector readings showed 'economic strife' was easing in the UK, with the economy likely to grow by 0.3% in the first quarter of 2024.

No Major Data

EUR/GBP flat as EU And UK PMIs both improve

There have been optimistic whispers that the sluggish EU economy may have bottomed out and will return to growth this year. Thursday’s PMIs will have added some further evidence to this theory, as the composite number increased from 47.9 to 48.9. This is still in contraction territory but only just, and the readings are creeping higher. There are still areas of weakness, Germany and France continue to drag the composite number lower while other countries are having a more positive effect. German Manufacturing fell back to 42.3, missing the 46.1 estimate significantly. This weighed on the EU number which fell from 46.6 to 46. French Manufacturing beat estimates, but at 46.8 was still a drag. The French composite figure of 47.7 was its strongest reading for nine months.

Data:

Germany GDP,Q4) YoY: -0.2%, QoQ: -0.3%

ECB's Schnabel speech: 1pm

USD Slips as the S&P 500 Rallies to a Record High

The Dollar index (DXY00) on Thursday fell to a 2-1/2 week low and finished down -0.04%. Thursday’s rally in the S&P-500 to a new record high reduced liquidity demand for the Dollar. Losses in the Dollar were limited by signs of strength in the U.S. economy after weekly U.S. jobless claims unexpectedly fell to a 5-week low, and the Feb S&P manufacturing PMI expanded at the strongest pace in 17 months. U.S. weekly initial unemployment claims unexpectedly fell -12,000 to a 5-week low of 201,000, showing a stronger labour market than expectations of an increase to 216,000. The markets are discounting the chances for a -25 bp rate cut at 6% for the March 19-20th FOMC meeting and 29% for the following meeting on April 30-May 1st.

No Major Data