Parky’s quick take: 11 March 2024

12 Mar 2024 . 2 min read

Signs indicate that the consensus is shifting on monetary policy

Last week, the ECB (European Central Bank) shifted its position a little further, indicating that the time is fast approaching when the governing council feels comfortable in easing interest rates, in an effort to lift anaemic domestic demand growth. The risks around inflation remain, with shipping costs elevated because of increased attacks by Houthi rebels in Yemen on ships in the Red Sea. However, it would appear that the ECB is not alone, as the Federal Reserve and the Bank of England are also gearing up towards interest rate reductions, albeit the US economy appears to be doing the best of all the major economies.

That change in monetary policy, which could be further signalled when we get the Fed and BoE’s (Bank of England) announcements next week, may prompt a change in sentiment in the FX markets. Last week perhaps gave us a glimpse into an increasing pressure cooker that is the constrained major currencies. In my view, this was when GBPUSD and EURUSD both broke higher, predominantly on the back of the news that the Bank of Japan might end its negative interest rate policy. This could prompt significant strengthening moves in USDJPY over the coming weeks, but mainly against the USD, in my opinion. Over the next few weeks, we could see more uncertainty and volatility in the likes of GBPUSD and EURUSD, when domestic economies don’t really offer any significant additional insight.

This week, the US consumer prices, retail sales and producer prices, all for February, are due for release. In addition, the UK labour market data for January/February, and the January activity data are due to be released (Gross Domestic Product, industrial production, index of services and construction output). There could be some data-led FX moves, but I doubt things in the UK will look much brighter, or in the US any worse.

Consequently, we may be looking for more information from geopolitics and further-flung economies for any signs of strength or weakness in GBPUSD. If there are risks, in my opinion they lie in an extension of recent moves higher for GBPUSD and GBPEUR, but could run into significant resistance only just above levels tested in the past few sessions.

Central banks – all quiet this week, but next week is very busy

In terms of other markets and central bank decisions, the calendar is bare this week. I think the markets will be keeping their powder dry ahead of the Fed and BoE meetings next week. However, let’s not forget the likes of Australia, Japan, China, Indonesia, Iceland, Czech Republic, Brazil, Switzerland, Norway, Turkey, Mexico, Russia and Colombia are all scheduled to make announcements in and around those two major central bank decisions.

The risks of more significant market movement in FX and interest rate markets are expected to increase as we head towards the close of this week, with the prospect of a few surprises from these secondary, but still important central bank meetings.

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Parky’s quick take: 11 March 2024

Signs indicate that the consensus is shifting on monetary policy

Central banks – all quiet this week, but next week is very busy

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