With an array of key data points released this week in the UK, Eurozone, and US, anticipation was high among traders and analysts, with high volatility expected. It did not disappoint. As is usually the case when there is an interest rate decision, it was the ECB that took the spotlight with their latest interest rate announcement. Although it was widely anticipated that the ECB would hold rates at 4.5%, which did indeed turn out to be the case, much attention was focused on Christine Lagarde’s remarks during the subsequent press conference. Investors were eager to parse any hints about the central bank’s future monetary policy stance. However, Lagarde’s comments offered little new insight, resulting in a muted market reaction. Nonetheless, both the Pound and US Dollar have been steadily appreciating against the Euro since the announcement.
The standout news on the US front this week was the release of the latest Consumer Price Index (CPI) figures on Wednesday. Initial forecasts had anticipated a modest 0.2% year-on-year increase, but the actual headline inflation figure came in at a surprising 3.5%, up from 3.2% at the previous meeting. This unexpected jump in inflation sent shockwaves through financial markets, prompting a surge in demand for the US Dollar. Consequently, the GBP/USD currency pairing dropped to its lowest level since November 2023. The subsequent release of Producer Price Index (PPI) data the following day further solidified the US Dollar’s gains.
Turning our attention to the UK, this morning brought the release of the latest Gross Domestic Product (GDP) figures. For the second consecutive reading, the UK economy grew, albeit at a modest pace. The reading came in line with expectations, showing a 0.1% expansion, down slightly from the 0.3% growth reported in the previous reading. While the economy continues to demonstrate resilience, uncertainties surrounding the political landscape and global economic headwinds remain significant factors influencing growth prospects.
Looking ahead to the coming week, inflation data is once again poised to take centre stage. In the UK, market participants eagerly await the release of the latest Consumer Price Index (CPI) and Retail Sales figures, which are expected to provide further insights into the health of the economy. Meanwhile, in the US, attention will be focused on the release of retail sales figures, with expectations running high for potential market-moving revelations. As such, elevated levels of volatility are anticipated as traders react to the latest economic indicators and adjust their positions accordingly.