Market Update

Pound Sterling reached a 4-month high yesterday against The Euro after a mixed bag of PMI results across manufacturing and services sector for both The UK & EU. Across the board results showed a decline in these sectors throughout Europe, whereas manufacturing and services in particular in The UK saw a surprising increase, paving the way for Sterling to climb. The Pound did however struggle to break higher against The EUR, as it has pretty much been locked between 1.14 – 1.17 since May 2023. Moving forward, any potential to break the 1.18 area and higher will pretty much come down to who bolts first with Interest Rate cuts.

On the topic of Interest Rate cuts, we have the decision from The European Central Bank later this afternoon. They have kept their rates on hold since September, and seem very intent on leaving the rates untouched until at least the summer of 2024. However, due to the weak figures released from The Bloc yesterday, its clear that The ECB are very much data dependent. More softer economic data in the short term would create some pressure for The Central Bank to act sooner rather than later, and that’s why the press conference this afternoon will be of key importance. It should be noted, its expected that the rates are left unchanged today, but any change of tone in the forward guidance could lead to GBP/EUR looking very different in a few hours’ time.

Later this afternoon we also have GDP Growth figures out for The U.S, with Personal Expenditure contributing 68% to this figure. Expectations currently suggest GDP will have dropped by nearly 3%, which will be quite an alarm for The Federal Reserve. It could be argued that a lack of spending from households is due to a lack of confidence, or even higher inflation combated with high interest rates. Either way, this will be a conversation of concern for The Federal Reserve and could reignite the rumour mill for when the Central Bank will look to make their first interest rate cut.

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