From dollar to European currencies, what to expect with a rate cut?

“We're heading into a week unusually quiet in terms of data and monetary policy. The CPI reports of United Kingdom (Wednesday) and of Japan (Thursday) will represent the main reference parameters, as well as a series of interventions by the ECB and the Federal Reserve during the week. We expect markets to continue to do so accounts with the consequences of reports on the consumer price index and with the possibility that cuts in the Federal Reserve are delayed until the end of the year”.

The dollar strengthens

This is what the weekly report underlines Ebury, “Dollar strengthens amid doubts about upcoming Federal Reserve cuts.”

The March inflation report – we read – “has reserved another bad one surprise at the Federal Reserve, exceeding expectations and confirming the trend disinflationary of 2023 has completely stopped, and perhaps even temporarily reversed. Treasury yields soared, traders scaled back expectations for cuts and the dollar appreciated against all major world currencies. Following this movement there appears to be a possibility that inflation and US policy will diverge from
those of the others major economies”.

The report Ebury

As for nervousness about the conflict in Middle East “It did nothing but add fuel to the fire. European currencies are particularly penalized, as the increase in raw material prices leads to a worsening of commercial conditions for the continent”.

EUR

The April meeting of the ECB, as expected, “He didn't bring no change in terms of monetary policy, but announced an interest rate cut in June. President Lagarde specifically referred to the divergence in inflationary pressures which would allow the ECB to cut rates before the Fed. We believe that the six-month gap in inflation data between'Eurozone and the United States makes it premature for the central bank to declare victory over inflation, but nevertheless the June cut is on track. The key question now is how quickly the subsequent cuts”

USD

The report onMarch CPI – the report notes – confirmed fears that inflation in the United States is stuck at an uncomfortably high level. The core index recorded a 0.4% monthly rate for the third consecutive month, with an annualized pace of nearly 5%. An economy at full employment, with rates just above inflation and a massive fiscal deficit is not particularly conducive to interest rate cuts: markets have gone from 6 cuts in 2024 a few weeks ago to less than two today, resulting in repricing of rates along the curve and strengthening of the US dollar. This week, the official statements of the Federal Reserve will be crucial to evaluate the extent to which the opinions of the Fed justify this drastic repricing.

GBP

A positive monthly report on GDP “He unleashed optimism that the British economy will continue to outperform gloomy expectations. There pound, tHowever, it was caught up in the general sell-off against the US dollar, even though it managed to outperform the euro by a small margin. This week it will beit is fundamental for the timing of the rate cuts Bank of England, whose expectations have so far been almost as delayed as those of the Federal Reserve. Tuesday's wage information and Wednesday's inflation will be key to understanding whether the disinflationary process in United Kingdom will continue or will it start to stagnate like in the United States”