So far this year, GBPUSD hasn’t traded above $1.2786 or below $1.2519, whereas in 2023 the range was 2¼ times in size. For GBPEUR the range has been between €1.1472 and 1.1767, but since 5 January, GBPEUR has not been beneath €1.16. The ranges for most major currencies have been tight, suggesting that the FX markets are unsure of how things will pan out for most economies over the course of 2024 and beyond. A lot of the rebound in the GBP has been driven by the FX and interest rate markets pricing-out interest rate cut expectations from the BoE (Bank of England).

Last week saw a number of BoE officials appear in front of the Treasury Select Committee, and there was no sense of urgency from them about the need for monetary policy loosening. And that’s despite further evidence of economic weakness and signs of reductions in consumer price inflation.

Could the BoE speeches due this week also prompt a further rally in GBP? We have Chief Economist Huw Pill and ‘in-house hawk’ Catherine Mann due to speak this week, and I suspect this will be of more interest to markets than the limited data calendar. Could the comments from these two Monetary Policy Committee members offer additional support to GBP and prompt a move towards the highs for the year? Perhaps, although I thought that last week’s comment from BoE Governor Andrew Bailey, stating that current expectations for UK interest rates were not unreasonable, were limiting for the pound’s potential upside. 

This week sees the release of preliminary February consumer price inflation figures from France, Germany, Italy, and finally, the aggregate outturn. If there is an undershoot of headline inflation pressures versus expectations, that should only increase the pressure on the ECB (European Central Bank), that has had to contend with further indications of economic weakness from the most recent surveys, particularly the February manufacturing PMI (Purchasing Managers’ Index).

Will any of the ECB speakers due this week indicate a growing sense of concern around Euroland’s poor economic performance? I think the Governing Council should be worried by the weakness that is being exhibited in areas such as manufacturing and real estate, especially given that the export environment has also worsened. The EUR may get some upside against the USD, thanks to poor US performance, but against the GBP I think there are greater challenges for the EUR this week.

From a political perspective, the last week has seen former President Trump continue to win Republican primaries, the latest victory coming in Nikki Haley’s home state of South Carolina. Haley is his only remaining rival but has yet to really land a glove on Trump. In just over a week’s time, the Super Tuesday series of primaries will be held, where one third of all delegates can be won. If Nikki Haley fails to drum up much support over those elections, the growing suspicion amongst political analysts is that she will be forced to quit her Presidential run. Could we be edging closer to a rematch of Trump/Biden? If so, could a possible Trump victory be seen as damaging for financial market sentiment?

This week also sees the central bank of Hungary and RBNZ (Reserve Bank of New Zealand) hold meetings. The Hungarian central bank is expected to cut interest rates by a full percentage point. Inflation is heading in the right direction, now only 0.8 percentage points from its target, and Hungary faces tighter global financial conditions (with the major central banks expected to cut later).

There is a risk the Hungarian central bank cuts by only 75 basis points, but I suspect a majority of officials will opt for the bigger cut.

As for the RBNZ, the markets have recently seen the central bank issue a ‘hawkish’ stance on monetary policy, but there appears to be no domestic or international justification for another rate hike. Instead the RBNZ, witnessing lower inflation pressures and a poorly performing domestic economy, should be looking at cutting interest rates. Perhaps it is waiting for the US Fed to lead the way, but any delays could prove costly in terms of the additional damage current policy will do to the domestic economy, in my view.