Eyes on Key Economic Data, Geopolitics to Guide Currency Moves
Market Analysis for Week Number 13 2024
DERBYSHIRE UK, Mar 26, 2024, Week 13. Welcome to Tuesday. This week, forex traders are closely watching key economic data releases from major economies. On Thursday, the US will report its Q4 2023 GDP growth rate, initial jobless claims, and retail sales figures. The Eurozone and UK will also publish their respective GDP data for the same period. Additionally, the US core PCE price index, the Federal Reserve's preferred inflation gauge, is due on Friday. These indicators will provide insights into economic strength, price pressures, and potential policy paths, influencing currency movements.
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US Dollar Faces Downward Pressure Amid Mixed Economic Signals
The US Dollar Index (DXY) eased below 104.3 last week, giving back some gains as investors turn cautious ahead of the US PCE price index report for February. The index remained close to five-week highs amid bets that US interest rates could remain higher for longer, even as other major economies consider cutting rates. The unexpected rate slash by the SNB and the dovish pause by the BOE contributed to the dollar's strength. However, the DXY retreated sharply this week, possibly due to support from Chinese state banks.
Several important economic events are scheduled for the upcoming week that could impact the US dollar. These include:
US GDP Growth Rate (Q4 2023)
US Core PCE Price Index (February)
US Retail Sales (February)
US Personal Income and Spending (February)
The PCE inflation data, being the Fed's preferred gauge, will be closely watched by investors for clues on the central bank's next steps. A higher-than-expected reading could support the dollar, while a lower figure may exert downward pressure.
Downward Pressure Likely as Economy Navigates Crosscurrents: Based on the analysis of recent economic data and the fundamental report, the US dollar is expected to face downward pressure in the coming week and beyond. While the economy continues to show resilience, mixed signals from consumer spending, manufacturing, and trade suggest potential headwinds. The cautious stance of the Federal Reserve and the complex geopolitical landscape add to the uncertainties.
This outlook aligns with Trading Economics' forecast of the dollar index trending lower to 103.80 by the end of Q1 2024. Traders should closely monitor the upcoming economic releases and global developments to assess any shifts in the balance of risks for the greenback. Overall, the US dollar may struggle to maintain its recent strength amid the prevailing economic crosscurrents.
Euro Faces Downward Pressure Amid Economic Challenges and Dovish ECB Signals
The EUR/USD pair dipped to around $1.08 last week, reaching its lowest point since February 29th, as dovish comments from European Central Bank policymaker Joachim Nagel boosted hopes of potential rate cuts in the near future. Nagel's sentiment aligns with a growing number of policymakers advocating for a possible cut in June or July. Markets are currently pricing in an 89 basis point reduction in rates for the year, equivalent to at least three, possibly four, 25 basis point moves. However, Nagel cautioned that an initial rate cut doesn't necessarily imply subsequent adjustments, emphasising the ECB's data-driven approach to decision-making.
Several important economic events are scheduled for the upcoming week that could impact the EUR/USD pair:
Euro Area Industrial Sentiment (March)
Euro Area Services Sentiment (March)
Euro Area Consumer Confidence (March)
Euro Area Economic Sentiment Indicator (March)
Euro Area Unemployment Rate (February)
Euro Area Inflation Rate (March)
These indicators will provide insights into the overall health of the Euro Area economy and may influence the ECB's monetary policy decisions. Weaker-than-expected readings could further support the case for rate cuts and put additional downward pressure on the euro.
Downward Pressure Likely as Euro Area Navigates Economic Headwinds: Based on the analysis of recent economic data and the fundamental report, the EUR/USD pair is expected to face downward pressure in the coming week and beyond. The Euro Area economy is grappling with sluggish growth, competitiveness concerns, and geopolitical uncertainties, which may weigh on the euro's performance.
This outlook aligns with Trading Economics' forecast of the EUR/USD exchange rate trending lower to 1.08 in 12 months. Forex traders should closely monitor the identified economic indicators and any further dovish signals from the ECB to assess the euro's trajectory. Overall, the euro may struggle to maintain its recent levels as the Euro Area navigates through economic challenges and the prospect of monetary policy easing.
Sterling Faces Downward Pressure as UK Economy Navigates Challenges
The British pound slid to around $1.26 last week, touching its weakest level since February 19th, as UK consumer spending stalled in February and Bank of England Governor Andrew Bailey hinted at potential interest rate cuts this year. According to the ONS report, UK retail sales remained stagnant last month, following a significant 3.6% surge in January and contrasting market expectations of a 0.3% decline. Meanwhile, Governor Bailey noted positive indicators of decreasing inflation but emphasised the need for more certainty in managing price pressures. The Bank of England, with an 8-1 vote, maintained borrowing costs at a 16-year high of 5.25%, with two officials adjusting their previous stance advocating for higher rates.
Watch the following economic events are scheduled for the upcoming week that could impact the GBP/USD pair:
UK GDP Annual Growth Rate (Q4 2023)
This indicator will provide insights into the overall health of the UK economy and may influence the Bank of England's monetary policy decisions. Weaker-than-expected readings could further support the case for rate cuts and put additional downward pressure on the pound.
Downward Pressure Likely as UK Economy Faces Headwinds: Based on the analysis of recent economic data and the fundamental report, the GBP/USD pair is expected to face downward pressure in the coming week and beyond. The UK economy is grappling with sluggish growth, persistent inflationary pressures, and trade imbalances, which may weigh on the pound's performance.
This outlook aligns with Trading Economics' forecast of the GBP/USD exchange rate trading around 1.27 by the end of the second quarter of 2024. Forex traders should closely monitor the identified economic indicators and any further dovish signals from the Bank of England to assess the pound's trajectory. Overall, the pound may struggle to maintain its recent levels as the UK navigates through economic challenges and the prospect of monetary policy easing.
Gavin Pearson
Retail trader since 2008
Specialises in forex
Funded account from the 5ers.com
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Regular contributor to FXStreet.com analysis and education pages
Returned 27% in 2022 and -2.7% in 2023
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