Market Report - 28/03/2024
UK 2023 recession confirmed ; FOMC rate cut expectations strengthen the Dollar
As we approach the Easter weekend, there have been some alarming reports regarding the UK economy this morning; The Office for National Statistics have reported that after an unrevised decline of 0.1% in the preceding quarter, UK GDP is predicted to have decreased by an unrevised 0.3% in the last quarter of 2023, from October to December.
The data supports an earlier estimate that the UK economy shrank at the same time that prime minister Rishi Sunak was debating whether to call an election.
After growing by 4.3% in 2022 as the UK recovered from the coronavirus pandemic lockdowns, GDP increased by just 0.1% in 2023.
Whilst this morning’s data paints a fairly bleak picture for the UK economy as a whole, the Pound has remained relatively well supported against the Euro. This could have been a result of the release of German retail sales data this morning. An increase in monthly retail sales figures by 0.3% was forecast, however this failed to deliver with the actual print revealing a decrease of -1.9%. This clearly caught traders by surprise and added further misery for the single currency, which has been one of the worst performing G10 currencies over the past fortnight.
Following a softer than expected UK CPI release from last week, the Pound weakened off slightly with odds of a June rate cut from the Bank of England, now firmly in the forefront of economist’s minds. Governor Andrew Bailey noted in his post MPC meeting press conference that the BOE believe they can cut rates from its current levels, without running the risk of boosting inflation. Initially this news prompted a fall on GBP/EUR from 1.17 down to below 1.1650, however with the European Central Bank also forecasting an early summer rate cut (with the possibility of 4 more to follow throughout the remainder of the year) there is every possibility that a resurgence on the pair arrives, with GBP/EUR still tipped to strike fresh highs by Q3.
Taking a look at the US Dollar; markets have seen considerable strength for the greenback over the past 48 hours, with dampening expectations of a rate cut from the Fed following worse than expected inflation data released not too long ago. Furthermore, FOMC member Christopher Waller stated there was "no rush" to drop interest