EUR (1.089) ▲

▪ Despite slow growth, particularly in Germany, the EUR rose above 1.09/USD threshold on March 7. This was after the European Central Bank (ECB) kept its policy rate unchanged without hinting at future rate cuts, while Fed Chair Powell reiterated that rate reductions were still under considerations for this year. However, persistent high inflation data in the US dragged the bloc's currency below the 1.09 level again on March 15.

▪ The DXY might gain support from an anticipated neutral stance by the Fed in its upcoming FOMC meeting this week. Meanwhile, the EUR is expected to remain range-bound against the USD, as it is unlikely the ECB will offer clear policy direction in its April meeting. Spring wage negotiation data will be crucial for the ECB when considering its first rate cut. Yet, the Eurozone’s relatively weak macroeconomic readings may restrain the bloc’s currency gains.

GBP (1.274) ▬

▪ Strong UK GDP figures and with the Fed's dovish stance, despite solid US data on inflation, jobs, and growth, have pushed the GBPUSD to nearly an eight-month peak of 1.286 on March 8. However, a slowing UK wage growth, coupled with a rising unemployment rate, has heightened expectations for a Bank of England (BoE) rate cut in June. This anticipation has contributed to the GBP weakening to the 1.270 level.

▪ With the BoE indicating a cautious approach to rate cuts, preferring to maintain current levels this week, positive UK macro data could mitigate further GBP declines. The notion that the BoE might delay rate cuts until after the Fed acts could also support GBP’s current level. However, should the Fed adjust its projections towards a more hawkish stance, the GBP might weaken, potentially falling below the 1.25 mark.

Source: Kenanga Research - 19 Mar 2024