With limited UK data released this week and an array of key data points emerging from the US and Eurozone, it was always likely that, provided the UK didn’t post horrendous PMI figures, we would be left to the whims of the US and Eurozone data, as well as the global political situation. The UK PMI results were released on Wednesday and proved resilient once again, with Services coming in at 53.8 (forecast to be 53.1) and Manufacturing at 47.3 (forecast for 46.7). Although remaining below the key data point of 50, the figures marked an improvement from forecasts, revealing the buoyancy of the UK economy.
Attention swiftly turned towards the fortunes of the Eurozone and the US. The Eurozone, under particular scrutiny, was widely expected to be the first to cut rates following a string of dovish ECB member speeches and a slowing economy. Wednesday saw the release of Eurozone figures between 8:15 and 9 am, which were rather poor. Despite an uptick in a couple of metrics, the figures still lagged behind the state of the UK and US economies, signalling a potential period of rate cuts ahead.
On Thursday, the ECB decided to hold interest rates at the current level. Lagarde’s dovish comments following the decision caused the Euro to experience a sell-off, reaching its lowest level against the Pound since last August. The next ECB decision will be on March 7th, and while another hold is expected, it’s no longer a given that rates won’t be cut. Consequently, any comments regarding monetary policy are likely to be highly scrutinised.
In the US, both manufacturing and services PMI figures came in above the key data point of 50, as expected. Coupled with GDP hitting an impressive 3.3% against a forecast of 2.0%, these numbers suggest that the US economy is withstanding interest rate pressure and might be poised to maintain higher rates for longer. This indicates a potentially strong USD throughout the year, particularly as it retains its safe-haven status.
Looking ahead to next week, both the US and UK central banks will make their latest base rate decisions, with both highly expected to hold their rates. However, any comments regarding future decisions could cause high volatility in the markets. Additionally, non-farm Friday in the US will be a significant event, closely watched by traders following the impressive GDP figures, released this week.
