March 20, 2024

“UK CPI fell to the lowest since 2021 this morning but sterling is little changed, owing to some underlying signs of persistence. Today is really all about the Fed, however, where a significant amount of attention is likely to be paid to the fresh set of economic projections, which catalysed some very large moves back in December.”

Tim Hallinan – Trading Director

Main Headlines

Nvidia’s stock saw an uptick on Tuesday following announcements that its upcoming flagship AI processor is slated for release later this year. CEO Jensen Huang shared aspirations of capturing a data centre market exceeding $250 billion during the company’s annual developer conference in San Jose, California, sending Nvidia’s stock climbing nearly 2%.

British employers revised down their projections for pay increases in 2024, according to a survey released on Wednesday. The median pay forecast for UK companies dipped to 4% in the latest report from XpertHR, a human resources publication, down from the previous year’s actual pay rise of 6%. This adjustment comes just ahead of the Bank of England’s impending interest rate decision, reflecting a broader economic landscape characterised by moderated inflation expectations.

GBP

Sterling has struggled to find any direction this morning after UK inflation fell more than expected to 3.4% in February. The fall in the headline figure is an encouraging number for policymakers, but this was dampened by the details of the report that painted a more hawkish picture that will struggle to ease concerns at the Bank of England about inflationary persistence – the 0.6% monthly price rise was the largest since last May, and 6.1% services inflation is still incompatible with sustained achievement of the 2% target. The high run rate in inflation should be enough to keep the Bank of England’s messaging cautious and untweaked in tomorrow’s policy decision, where they are likely to reiterate the need to wait for more concrete evidence that domestic inflation is dissipating.

EUR

The euro closed slightly lower yesterday but recovered modestly from a two-week low reached early in the session. A particularly strong ZEW economic sentiment index failed to generate any positive price action for the common currency, despite the rates and economic outlook boosting the figure to its highest in two years for the eurozone. The ECB’s Kazaks bolstered hopes for the June cut yesterday, saying that he is ‘comfortable’ with market bets for three cuts this year. A bundle of further speakers come today at the ECB Watchers Conference, among which are Lagarde, Schnabel, and Lane, all of whom are likely to repeat similar rhetoric that looks towards cuts this year but places some strong emphasis on the data to come in April and May before pulling the trigger. We also get the consumer confidence figure this afternoon.

USD

It is Federal Reserve decision day for the US dollar, where the dots are set to dictate FX today. A rate hold is the certain outcome, of course, and so most of the focus will be on the updated economic projections and on Powell’s forward guidance for clues on the rate trajectory in both the near and longer term. The markets currently pencil in around 70bps in cuts this year but, as many have commented, it would only require two policymakers to change their projections for the year-end Funds Rate to shift the median from three cuts to two cuts this year. This would release rate cut expectations from the grip of last December’s three cut dot-plot and open the gate to some further dollar strength if US yields can move that bit higher. But much attention will be paid to expectations for 2025 and 2026 too, where any hints towards a higher ‘neutral’ interest rate could unlock some structural strength for the dollar in the longer term. On the other hand, an unchanged set of projections and a still confident Powell could push the dollar back towards its year-to-date lows and ramp up hopes for a Q2 cut.

Markets

The markets were generally mixed yesterday, and most indexes inched slightly higher, although European stocks are pointing towards a lower close this morning as investors gear up for the Federal Reserve decision this evening. Oil prices have slipped this morning but remain around their highest levels since November on an improved demand outlook. Japan is on holiday today after the BoJ hiked rates for the first time in 17 years yesterday.

Main Economic Events (All Times CET)

2:15am: Chinese Loan Prime Rates
8:00am: UK CPI
9:45am: ECB President Lagarde speaks
4:00pm: Euro Area Consumer Confidence
7:00pm: Federal Reserve Rate Decision
7:30pm: Federal Reserve Press Conference

To learn more about Ballinger Group, please visit our website or our LinkedIn page.