In what has been perhaps the most volatile period of the year to date, Cable has witnessed swings of around 3.5% over the last month. While we were anticipating a decline in the Pound against the USD over the next few months, the extent of the drop and subsequent recovery has been somewhat surprising. Against the backdrop of potential wider conflicts in both Eastern Europe and the Middle East, as well as political uncertainty with highly contested elections looming in both the UK and US, it is likely that we will continue to see significant market swings influenced by global events.
For now, however, market movements remain largely influenced by central bank actions and data releases. Last week, a dovish tone from Bank of England speakers Bailey and Ramsden regarding the prospect of future rate cuts starting in June led to a sharp decline in the value of the Pound late into Friday night. However, hawkish comments from the BoE in the early part of this week, contradicting the previous week’s sentiments, prompted a significant turnaround in the Pound’s fortunes, resulting in a movement of around 220 pips in the GBP/USD pairing over three days.
Several key data points have contributed to these swings. Starting on Tuesday with PMI releases for the Eurozone, UK, and US, the French and German results set a tone for the day. While services remained robust for both, with readings above 50, manufacturing figures for both countries fell below the key threshold of 50 and missed forecasts. Similar trends were observed in the Eurozone figures released shortly after. In the UK, strong services figures were offset by a significant drop in manufacturing, which fell below the crucial 50 mark. The US also followed suit with manufacturing figures dipping below 50 and services hovering just above it. However, the notable aspect of the US PMI figures was that they were substantially lower than forecast, potentially indicating the economy’s response to the Federal Reserve’s monetary policy. This was further underscored by disappointing advanced GDP figures, which came in at 1.6% compared to the previous reading of 3.4% and the forecasted 2.5%, suggesting a potential easing of inflationary pressures.
Later today, the US will release its latest Consumer Sentiment figures, a key indicator used by the Fed to gauge consumer spending. Looking ahead to next week, all eyes will be on the US with the Fed’s latest interest rate decision due on Wednesday, followed by non-farm employment data on Friday. These two pivotal data releases are likely to shape market sentiment for the coming weeks and so I would expect another week of high volatility.
