Pathfinder Currency Market Update March 14th

By Adam Jordan

The Pound

The UK economic seesaw continues as we find out the economy shrank unexpectedly by 0.1% in January, with a slowdown in manufacturing one of the main reasons for the dip.

The performance squashes any optimism gained after the economy had surprised to the upside by growing 0.4% in December.

The latest figure will be seen as a blow to the government, which has said its number one priority is to boost UK economic growth. The market is now pricing in 2-3 interest rate cuts from the Bank of England for this year, taking the rate back below 4%. Although the UK is expected to narrowly dodge a recession, high inflation with little to no growth is the definition of stagflation and will likely weigh on the pounds value moving forward. Pathfinder Currency Market Update March.

US Dollar

Over in the US, interest rates are expected to remain on hold for now at their target 4.25%–4.50% range, following Fed Chairman Jerome Powell’s justification of solid US fundamentals, subdued inflation, and a tight labour market. However, President Trump’s shifting stance on tariffs remains a source of significant uncertainty.

Although Canada and Mexico have been granted a temporary reprieve until April, the reality of a global trade war is already weighing on economic growth prospects and has muddled the Feds policy outlook.

Tariffs can stoke inflationary pressures, potentially prompting the Fed to tighten policy more aggressively, but they can also curb economic expansion; two competing forces that leave the Dollars trajectory uncertain. For now, the Dollar remains on the back foot, losing more than 4% against both the pound and Euro over the last month.

The Euro

The European Central Bank (ECB) has already lowered interest rates to 2.65% with further gradual cuts forecast. Despite this the Euro is expected to find some support from some positive rumours around Russia-Ukraine peace negotiations. Tensions appeared to cool slightly following the now infamous row between Presidents Trump and Zelenskyy, and any signs of easing geopolitical risk tend to favour currencies such as the Euro. However, once you throw in Trump's latest tariff threat of a 200% tax on alcohol coming from the EU to the US, the outlook for the Euro becomes more uncertain.

Moving forward, the currency market will likely remain very sensitive to developments in the trade war, diverging central bank strategies, and signs of economic growth while, any shifts in the Russia-Ukraine situation could then quickly reshape market sentiment, creating a volatile currency market.   

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Key Economic News Coming Up - Pathfinder Currency Market Update March

Monday 17th

China - Industrial production & Retail Sales

US - Retail Sales

Wednesday 19th

Japan - Interest Rate Decision

US- Interest Rate Decision

NZD - GDP Q4

Thursday 20th

Australia - Employment Figures

UK- Employment Figures

The Pathfinder Team

desk@pathfinder-fx.com

44 (0)1743 290955