April 08, 2024

“The dollar struggled to rally on a bumper jobs report on Friday, capping off a turbulent week with contrasting signals for the US economy. This week, US CPI and an ECB decision are the main events for the FX markets, which should provide some further divergence in expectations for the big central banks.”

Sam Cornford – Head of Trading

Main Headlines

Gold prices have continued their record-breaking rally this morning, hitting a fresh record high of $2,353.79. Gold’s 12% ascent this year has been propelled by robust central bank purchases, increased safe-haven demand amid geopolitical uncertainties, and inflows from momentum-driven funds.

British recruiters reported today that starting salaries for permanent staff saw their slowest growth in over three years last month, while spending on temporary workers experienced the sharpest decline since July 2020. The survey conducted by the Recruitment and Employment Confederation in March could reinforce the belief among some Bank of England policymakers that underlying wage pressures in the economy are easing.

GBP

Sterling firmed slightly against the dollar in a particularly data-light week for the UK, with GDP on Friday now the main focus for traders. Today, the Bank of England’s Deputy Governor Breeden speaks about the monetary system this afternoon, when markets will be keen to fine tune their expectations for the BoE’s rate path this year – the key variable here is whether she mirrors Bailey’s optimism about near-term rate cuts that catalysed a slide in sterling a few weeks ago, or instead provides some hawkish pushback. GDP on Friday will be the main domestic marker, however, which is expected at 0.1% growth in February.

EUR

Falling inflation bolstered the market’s conviction that the first eurozone rate cut would come in June last week, and yet a fairly quiet euro inched 0.5% higher against the dollar and 0.2% against the pound. The ECB makes its April decision on Thursday, where a hold is again almost certain and the focus for price actioin is largely on signalling towards whether the first cut is to come in June – some sort of pre-announcement or a reconfirmation that June remains the target could push the euro towards its lows of this year. For today, however, data this morning showed that German industrial production surged 2.1% in February, while the Sentix investor confidence survey should illustrate a further improvement in eurozone sentiment.

USD

While a bumper jobs report propelled the US yield advantage on Friday, the dollar failed to react as surging risk appetite offset its gains. The US economy added a whopping 303K jobs in the month of March – well above the 212K forecast – and unemployment edged lower to 3.8% in the fifth upside surprise in a row for the indicator, aligning strongly with the wait-and-see attitude advocated by an array of Federal Reserve speakers last week. As a result, the chances for a June cut have now been reduced to a mere coin flip in the rates markets, down from almost 90% only last month. While Powell did play down the likelihood that jobs data would delay cuts a few weeks ago, the data was an undoubted confirmation of the sheer unrelenting strength of the US economy. Markets are expecting further evidence in this week’s headline event, with CPI on Wednesday expected to jump back to 3.4% while the core measure remains as high as 3.7%.

Markets

Despite an overall weekly loss of nearly 1% for the likes of the S&P 500 and the FTSE 100, good news from the US jobs report was good news for equities on Friday as recovering risk appetite dragged the indexes higher, defying a 10bps rally in front-end US rates. Meanwhile, oil has slipped 1.25% this morning as tensions have eased in the Middle East over the weekend.

Main Economic Events (All Times CET)

7:45am: Swiss Unemployment Rate
8:00am: German Industrial Production
10:30am: Eurozone Sentix Investor Confidence
5:15pm: SNB Chair Jordan speaks
5:30pm: BoE’s Breeden speaks

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