Rate hike expected

GBP

Faltering growth

Sterling faced further pressure last week, bowing to US Dollar strength. The Pound closed 0.67% lower versus the US Dollar, reaching its lowest level since November 2020. This trend may continue in the coming months as UK consumers look set to be squeezed by higher expenses. UK growth showed a weaker-than-forecast February reading, with barely any expansion at just 0.1%. Versus the Euro, Sterling closed last week 0.90% higher, touching on two-week highs. Looking at the Bank of England, Bloomberg has forecast that interest rates will reach 1.5% by the close of this year—above the expectations laid out for the European Central Bank, but below the more hawkish Fed predictions of 2.0%. However, the BoE may not stick to current rate hike schedules as growth forecasts look less certain in the face of rapidly climbing inflation. Unemployment data will print this week, as well as inflation figures. It's a shorter week for UK markets with the Easter break ahead.

EUR

Macron and Le Pen battle it ou

The Euro has entered recovery mode today versus the strong US Dollar, climbing back above the 1.09 handle ahead of the European Central Bank's monetary policy decision this week. The ECB has suggested it intends to begin normalising monetary policy this year, so markets will be interested in Thursday's press conference for any clues. Bloomberg is forecasting the policy rate will be normalised by the end of 2022—currently, the deposit rate is sitting at -0.50. Meanwhile, French politics could be another factor to influence the Euro in the coming months. The first round of the French elections saw Emmanuel Macron win 27.60% of the vote, with opposition Marine Le Pen securing 23.41%. The final round of elections will take place on the 24th of April, with Macron only slightly ahead in opinion polls with 51.00%. ZEW will release Economic Sentiment surveys for both Germany and the Eurozone this week, and German inflation data will also make its way onto the market.

USD

Too much?

The US Dollar Index, which measures the Buck against a basketful of other majors, has been off to a muted start this week. Markets have largely priced in a 50 basis point interest rate hike by the Federal Reserve at its next meeting in May, with Bloomberg expecting policy rates to rise to 2.0% by the end of the year. These expectations were supported by hawkish comments from Fed policymaker Lael Brainard last week. However, economists are expressing hesitation around this rate hike cycle as the Fed appears to be on an aggressive monetary policy tightening path, leading some experts to think it could come at the expense of economic growth. This week, Lael Brainard will be speaking again, while inflation data and Retail Sales stats will also be released.

AUD and NZD

RBNZ rate hike in focus

The Pound ended last week just 0.19% lower versus both the Australian and New Zealand Dollars. Sterling slipped by as much as 1.83% against the Aussie, touching its weakest level since January 2018, while extending its run into the lowest levels since January 2021 against the Kiwi. The week ahead is packed when it comes to highly regarded data, with the Australian Westpac Consumer Confidence, Employment Change, and Unemployment Rate all due to print. Meanwhile, New Zealand events will include manufacturing numbers and the Reserve Bank of New Zealand's interest rate decision. The RBNZ is forecast to hike rates from 1.00% to 1.25%, but some industry experts have suggested there's room for a 50 basis point rise to combat rapidly-rising inflation.

CAD

Rate hike expected

The Pound closed last week 0.18% lower versus the Canadian Dollar. It's a very quiet week in terms of Canadian data, leaving the GBP/CAD pair to fluctuate on British or geopolitical developments or commodity price changes. However, the Bank of Canada is expected to hike interest rates on the 13th April, with expectations for a rise from 0.5% to 1.0%. Canada has produced some robust labour market data of late, with stats showing unemployment reaching its lowest levels since the data began in 1976.