EUR (1.099) ▲

▪ The EUR rebounded strongly from its low of 1.054 (March 8) against the greenback, primarily driven by the fall of the USD index (DXY) below the 102.0 level. This drop was prompted by a deceleration in the US headline CPI reading and a softening in the US labour market. In addition, the European Central Bank's (ECB) decision to hike by another 50 basis points (bps) has also benefited the bloc's currency.

▪ Increasing market expectations of another rate hike by the ECB, along with potential policy pivot signals by the Fed, may support further gains for the EUR against the USD in May. Furthermore, the market may closely monitor 1Q23 GDP readings for both the US and eurozone, as any signs of a slowdown in the US economy would raise recessionary concerns and potentially benefit the EUR.

GBP (1.241) ▲

▪ Despite the Fed's decision to raise rates by another 25 bps, the GBP appreciated against the USD due to signals of the Fed nearing the end of its tightening cycle and may soon pivot, along with higher-than-expected inflation reading in the UK. However, the GBP reversed some of its gains on April 14 due to solid quarterly performances by the biggest US banks and improving US consumer sentiment index.

▪ The GBP may trade range-bound as the market awaits UK's March inflation print, in which a reading above 10.0% YoY may solidify expectations of another 25 bps rate hike by the Bank of England, benefitting the sterling. Meanwhile, despite the possibility of the Fed continuing to increase the funds rate to 5.25% in May, a further slowdown in US inflation and jobs data may prompt the central bank to signal that it may pause in its June meeting, further strengthening the GBP.

Source: Kenanga Research - 17 Apr 2023