USD

The recent slump in commodity prices which has been caused by global recession fears has, at the start of this week, eased concerns amongst some investors about the persistent rise in inflation and as a result forced investors to scale back overly hawkish expectations for policy tightening from the Federal Reserve.

Futures pricing is now showing the US benchmark funds rate at 3.5% in March 2023, a decline from pricing at 4%. Despite the slight re-pricing of the dollar, many expect the Fed to continue to lead the Bank of England in tightening monetary policy. We can anticipate dollar downside here to be minimal until we have data or any comments from the Fed to support this view.

GBP

Sterling upside is expected to remain capped for now. The recent soft economic data has raised concerns for the economy, with fears of a recession continuing to dampen sentiment for the pound. Record high inflation and a cost of living crunch weigh on the pockets of consumers. A survey by Appinio has illustrated the impact price pressures are having on households, with 60% of respondents revealing they have raised their savings to pay bills and 70% indicating they have cut back in unnecessary purchases.

In addition, there is growing anticipation that the BoE will soon look to opt for a more gradual approach to hiking interest rates to prevent the British economy from stalling any further. As a result, many expect Sterling gains to be capped in the second half of this year. The highlight for Sterling this week will be the release of first quarter GDP on Thursday.

Key announcements

09:00 – EUR – ECB President Lagarde’s speech