March 07, 2024

“Powell’s kept the June cut alive in the eyes of markets yesterday, driving the dollar down to a one-month low. The ECB takes centre stage today with its second decision this year, where we will be keen to see how softened economic projections influence policymakers’ message.”

Sam Cornford – Head of Trading

Main Headlines

Nikki Haley concluded her improbable bid to challenge Republican presidential frontrunner Donald Trump yesterday, effectively securing Trump’s nomination as the party’s candidate in a rematch with Democratic President Joe Biden in the upcoming November election. Haley, the former governor of South Carolina and Trump’s ambassador to the United Nations, withdrew from the race following Super Tuesday, where Trump decisively won in 14 out of 15 Republican nominating contests.

British Chancellor Jeremy Hunt cut the National Insurance contribution rate by 2 percentage points in yesterday’s annual budget update, effective as of next month, in a potential last-ditch election giveaway that will cut taxes for 27 million British workers.

GBP

Sterling surged to a one-month high against the dollar yesterday alongside its major peers, as hopes for US rate cuts were boosted by policymaker testimony. The UK government’s budget update landed with minimal impact as expected, with its major announcements already leaked and few offerings likely to move the dial on the growth or inflation trajectories. The fiscal event was ultimately overshadowed by key developments across the Atlantic, which propelled the pound to its fourth consecutive daily bounce despite little change to the UK outlook. The headline events on the domestic calendar have all but closed out for this week, but there will be plenty of data points abroad to keep traders busy ahead of some key labour market and GDP growth releases next week.

EUR

The euro leapt to a one-and-a-half-month high yesterday evening ahead of a major impulse with the ECB decision this afternoon. With a rate hold a certainty, language tweaks in the statement and press conference will naturally hold the key to the market-implied rate path and therefore the euro today. A fresh set of macroeconomic projections are set to revise down expectations for inflation and growth, and this will inherently frame the debate for policymakers and market analysts alike. While some dovish concessions are due given the positive inflationary outlook, policymakers are still likely to lean on concerns about the labour market and services inflation to maintain its wait-and-see stance.

USD

The dollar index has slumped to a one-month low this morning after Fed Chair Powell revived expectations for policy easing this year. His speech was intentionally balanced and there was little desire to rock the boat with market pricing at comfortable levels. The core message landed as everyone had expected – progress so far has been great and this puts them at a peak, but uncertainties demand further confirmatory evidence, for which US economic strength affords the time to be patient. Yet there was also a specific mention that getting cold feet could cause unnecessary harm to the US economy, and due concern was given to the ill effects of overtightening. Overall, January’s hot CPI data had not materially dented prospects for rate cuts, and this emboldened the June cut bet. Job openings and quit rates eased meanwhile, bolstering hopes again for a more subdued payrolls figure tomorrow, after two months of strong beats.

Markets

World stocks are set for positive open as the risk on mood returns across the markets, boosted by Powell’s unchanged assessment of the policy outlook after January’s hot CPI figures. With a strengthening yen making Japanese assets more expensive this morning, the Nikkei is one of the few exceptions taking a knock.

Main Economic Events (All Times CET)

9:00am: Swiss FX Reserves
2:15pm: ECB Rate Decision and Monetary Policy Statement
3:20pm: US Unemployment Claims
2:45pm: ECB Press Conference
4:00pm: Fed Chair Powell testifies to the Senate

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