Last night’s Federal Reserve meeting minutes from January showed policy members were still divided on the path for future interest rate decisions as several members indicated a possibility for rates to stay higher for longer and some members also leaning towards further interest rate hikes if inflation was to remain stubborn.
The US Dollar has regained some momentum off the back of this, and all focus will now turn to Friday’s Personal Consumption Expenditure which is the Federal Reserve’s preferred measure of inflation. If the data released shows consumers still buying goods at elevated prices, this would support the US Dollar as it would allow The Federal Reserve to keep interest rates at a higher level for longer.
We end the week with UK Retail Sales for January which as of now looks set to come out weak with figures showing a drop of 0.2% on the monthly comparison and 0.3% on the yearly comparison. If figures were supportive of expectations, we could see Sterling weaken further as it would pretty much set in stone the need for an interest rate cut by the Bank of England next month in order to give more breathing space financially for consumers. In normal circumstances, with inflation being at 3% interest rates would generally stay higher when consumers are holding back from spending in order for businesses to drop their prices, but with consumers ultimately holding back on spending even with inflation dropping, it seems the only way forward is to lower interest rates. Exchange rate movement off the back of tomorrow’s release will provide a better idea of market sentiment around interest rates.
GBP/EUR 1.1424 GBP/USD 1.3485 GBP/AED 4.9564
GBP/AUD 1.9097 GBP/CHF 1.0422 GBP/CAD 1.8444
GBP/NZD 2.2565 EUR/USD 1.1789 GBP/ZAR 21.7887