GBPUSD has been on a four-week uptrend from the test of $1.18, and last week saw GBP briefly above $1.25 (high of $1.2525). However, the second half of the week saw the pound give back some of that gain, with the UK data calendar quiet, and despite weakness from most of the US data and survey releases. Even the release of US non-farm payrolls figures for March on Friday offered a mixture of strength and weakness, with the net payrolls growth figure broadly in line with consensus at 236,000, the unemployment rate unexpectedly dropping to 3.5%, but year-on-year average earnings growth a shade below consensus forecasts at 4.2%. It has been a similar picture for EURUSD, with its uptrend beginning around the same time, suggesting that the bulk of these moves are US dollar weakness and not GBP or EUR strength, in my view. However, given both the GBP and EUR handed back some of the recent strength, is that a sign that the bulk of the USD’s weakness is now over and done with, and that further FX moves will be data-dependent? 
  

There is perhaps still a little more USD weakness to come in the next few weeks, ahead of the raft of monetary policy decisions due at the beginning of May. However, it is becoming more likely that interest rates have peaked in the US and UK, and further hikes in Euroland are likely to be limited from here on. So even if the data does throw up a few surprises, it is unlikely to be sufficient to support a significant change in interest rate differentials (in terms of short-term peaks), so the focus for markets might be what it means for when rate cuts might happen in the months and quarters to come? 

As far as data and surveys are concerned, this week is once again dominated by the releases from the US. Wednesday has the March consumer price inflation figures due, along with March’s budget deficit figures and the FOMC (Federal Open Market Committee) meeting minutes for the 22 March decision. Thursday sees more March inflation data from the US in the form of producer prices, and then Friday has March’s retail sales, industrial production, and provisional April consumer sentiment figures from the University of Michigan. All of these could add weight to the argument for the Federal Reserve to pause in its rate hiking cycle, with the risks for weaker outturns in the majority of releases, in my view. The longer the Fed pauses, the more likely this would signal a peak in US official rates. Will that do much to the US dollar? It shouldn’t be a key reason for any turnaround in the USD, in my view, but watch out for any further drops in US government bond yields. I think we may see yields continue to decline across all major economies, and that could make further USD losses more difficult to sustain. 
 

There may also be interest in the UK monthly GDP (Gross Domestic Product) figures (February) on Thursday, as well as the April Euroland Sentix investor confidence data on Tuesday, and February’s industrial production figures also on Thursday. However, these are only likely to report further modest progress for these economies, and the entire effect of higher global interest rates on activity is many months, if not quarters, away still. Therefore, we should take only a little comfort from any strength in the data and surveys, in so far as they would hint at marginally better levels of activity heading into any downturn/stagnation, in my view. 

Last week’s interest rate decisions were basically all captured by consensus expectations, except for the Reserve Bank of New Zealand, which decided it would hike 50 basis-points when the market was only looking for a quarter point hike. Was it helpful to the NZD? In short, no it wasn’t. The Kiwi dropped sharply in the aftermath of the decision on Wednesday and closed out the week lower than where it had begun. There is always a danger that central banks can destabilise confidence in economic activity more than they can shore up their inflation-fighting credentials if they move too aggressively, and this appears to be what happened this time. The flip side was the Reserve Bank of India, which left interest rates unchanged, and the Indian rupee strengthened against the USD. 
  

For this week, the central banks that are due to make monetary policy decisions, including the Bank of Canada, are likely to take a less controversial and more conventional path, choosing to do nothing and leave policy unchanged, rather than spook the financial markets that are already a little rattled. Currencies are likely to hold steady in the main this week, but there may be some additional weakness in the CAD, given that speculative positioning is the most negative on the CAD that it has been since 2021, according to the CFTC (Commodity Futures Trading Commission) report.