Market Report - 12/06/2024
UK economy stagnates ; Fed set to leave rates on hold
The Office for National Statistics have released data this morning that confirms, that the UK economy stagnated, in the month of April – causing a significant blow to Prime Minister Rishi Sunak’s claims that the UK economy has turned a corner. This result means that GDP in the United Kingdom was unchanged in April and held at 0.4% growth seen in March.
Although this was actually in line with City expectations, April’s GDP reading is the worst since last December, when the economy also stagnated, and ends a three-month run of growth. Rishi Sunak and the Conservative party will be feeling the pressure with the upcoming election due to take place on July 4th, a second blow this week showing that the UK economy is struggling to maintain its momentum after leaving recession earlier this year.
Taking a deeper look at the data, services output grew by 0.2%, making it a fourth month of consecutive growth, and also grew by 0.9% in the three months to April 2024. Production output fell by 0.9% in April 2024 following growth of 0.2% in March 2024, but grew by 0.7% in the three months to April 2024. Construction output fell by 1.4% in April 2024, its third consecutive monthly fall, and fell by 2.2% in the three months to April 2024.
Despite the UK economy showing stagnation, the fact that there is added uncertainty in the EU following the announcement of a snap election in France has kept the GBP/EUR rate buoyed. It was noted yesterday that the currency cross was trading at levels not seen in 34 months, just under the 1.1870 mark. Those gains have remained relatively well supported even after this mornings data releases and it is expected to remain elevated as we edge towards the Bank of England meeting next Thursday, which is the key risk event GBP traders will be watching closest across the next 7 days.
Across the pond, markets turn cautious ahead of key data releases in the USA this evening, with US CPI data and the Fed policy announcements, which could have a big impact on the US Dollar's performance. The general consensus seems to be that the Federal Reserve is due to stay put, and keep rates on hold at the FOMC meeting. Policymakers have pushed back loosening the monetary policy to date, amid inflationary pressures and it is unlikely to change today with no action expected until at September at the earliest, meaning the benchmark rate is due to remain at 5.25% - 5.5%.
Ahead of the central bank’s announcement, the May Consumer Price Index (CPI) on is due to be released, with expectations that inflation will rise 3.4% in May, matching April's increase. On a monthly basis, the CPI and the core CPI, which excludes volatile food and energy prices, is expected to increase 0.1% and 0.3%, respectively.
EUR/USD has consolidated it’s recent losses and trades tepidly around 1.0750 in Wednesday's Asian session. Traders refrain from placing fresh bets on the pair ahead of the top-tier US CPI data and the Fed policy announcements, which could have a big impact on the US Dollar's performance.