ACM Update 29-01-24

Written by: David Comber
Date posted: 29-01-24
Christine Lagarde - ECB President

Starting off the latest round of central bank meetings, the ECB held their headline interest rate last Thursday lunchtime. Christine Lagarde reaffirmed her recent comments on the timeline of cuts, seemingly trying to cool market expectations.

This week sees the Federal Reserve and Bank of England meetings. A hold in rates for both feels like almost a certainty, but hints towards ongoing policy will be the key.

Outside of the ongoing geopolitical events continuing globally, a somewhat calm week of market movements again. Movements of circa 1% for GBP across most majors was the norm. The biggest data event came from the latest European Central Bank meeting which saw the ECB hold rates as widely expected.

In the subsequent press conference, Christine Lagarde commented that it was “premature” to debate a reduction in headline interest rates for the bloc. The ECB President stood by her comments of the previous week at the World Economic Forum in Davos, where she commented that the first drop in rates would likely happen “in the summer”. This was designed at cooling market expectations, given numerous recent comments from the ECB about markets being well ahead of current committee consensus.

The meeting also showed the latest growth forecast for 2024, which Frankfurt expects to be 0.8%. The panel continues to keep a watch on the events in the Red Sea, with concerns about inflation pressure.

Aside from this, there were a handful of other EU data releases. Consumer confidence in the bloc fell slightly in the January survey, continuing to fall into the “pessimistic” category as it has monthly since early 2018. Manufacturing and Services PMI numbers came in too, with the former beating expectations across the major EU players. Services however, which make up a bigger share of the economy, were under forecasts across the board.

A very quiet week for UK data, however what was released provided sterling with a boost. With recent concerns about the UK economy dipping into recession to close out 2023, the UK Services PMI figures showed real promise with not only a positive reading, but one well above forecast. The sector makes up circa 75% of UK GDP, and the surprise print pushed the pound to its highest against the Euro since late August.

Aside from this, GBP movements were relatively calm as is often the case in the run up to a Bank of England meeting. We await to see what Andrew Bailey & Co will say about immediate and ongoing policy come Thursday lunchtime.

Recent moves for GBP-EUR can be seen in the chart below:


In the US, Donald Trump continued to make progress in the Republican party presidential primaries, then spent the remainder of his week getting told off in court. His movement towards becoming party candidate hasn’t caused any FX market ripples yet, despite having drawn comments from central bank heads.

US Advance GDP recorded a buoyant 3.3% quarter-on-quarter growth in Q4, smashing market estimates of 2.0%. This goes against any lingering fears of a slowdown for the American economy. The Fed’s favoured inflation index, Core PCE, confirmed that inflation had grown at 2% (annualised) for the second quarter in a row, thus on target. Secretary of the Treasury and former Federal Reserve Chair, Janet Yellen, saw this as enough to declare inflation “well under control”.

The equivalent US Services and Manufacturing PMI releases were also both buoyant, with the Services release eradicating the gains GBP had made against the Dollar just a few hours earlier.

Movements for the week on GBP-USD are in the chart below.


The week ahead:

Monday – Japan Unemployment Rate (23:30 UK time)

Tuesday – Spanish Flash CPI & Flash GDP (08:00), UK Mortgage Approvals (09:30), US Consumer Confidence & JOLTS Job Openings (15:00)

Wednesday – Australian CPI Inflation (00:30), German Preliminary CPI inflation, ADP Non-Farm Employment (13:15), Federal Reserve interest rate announcement (19:00)

Thursday – SPA/ITA/FRA/GER/EU/UK Manufacturing PMI (08:15-09:30), EU CPI inflation Flash Estimate & Unemployment Rate (10:00), Bank of England interest rate announcement (12:00), US Unemployment Claims (13:30)

Friday – US Non-Farm Payrolls & Unemployment Rate (13:30)

A quiet start to the week, but plenty of big events in the second half. Wednesday evening’s Federal Reserve meeting will arguably be the most significant. This meeting looks set to be a further hold/pause from Powell and Co, but their comments about ongoing policy will provide the most intrigue.

Inflation is (broadly) falling in the US and as mentioned above has held 2% for the past two quarters. Growth remains strong, so the question remains when will the Fed decide to take action. Powell’s press conference at 19:30 UK time will be as important as ever. Any hints of the Fed moving towards cuts in interest rates, will see Dollar weakness.

Similar can be said for the Bank of England meeting, taking place on Thursday lunchtime. Though we expect to see the nine MPC members voting in favour of a further pause, continuing the “higher for longer” or “Table Mountain” policy approach. This is likely by a 7-2 or 6-3 at worst, split. Such a move should offer some support to GBP, especially versus the Dollar.

Friday’s Non-Farm Payrolls data will close out the week, with an expectation of another 177k jobs added to the US economy. The estimate is by no means accurate though, given recent monthly performances! Keep an eye on GBP-USD over the second half of the week.

As always, make sure to reach out to the team for any pending payments you might have.

Have a great week.