FX Market Overview: Pound Outperforms as Dollar, Euro, and Yen Show Mixed Moves

Today at 15:30 (GMT+2), investors and forex traders will focus on macroeconomic data that could increase market volatility. Fourth-quarter GDP is expected to slow from 4.4% to 2.8%, which does not require monetary stimulus. At the same time, the December core Personal Consumption Expenditures (PCE) price index is expected to rise from 0.2% to 0.3% month-on-month and from 2.8% to 2.9% year-on-year. If these forecasts are confirmed, they could strengthen the position of more hawkish policymakers within the Federal Reserve and provide additional support to the dollar. Meanwhile, initial jobless claims fell from 229.0K to 206.0K, below expectations of 223.0K. The four-week average edged down from 220.0K to 219.0K, while continuing claims totaled 1.869M versus 1.860M previously. At the same time, President Donald Trump’s chief economic adviser Kevin Hassett stated that the authors of a Federal Reserve Bank of New York report—claiming that tariff costs are largely borne by U.S. consumers—should face sanctions for poor-quality academic research. The report indicated that 90.0% of import duties last year were effectively paid by households, with losses reaching 94.0% from January to August, 92.0% from September to October, and 86.0% since November. Commenting on these remarks, Minneapolis Fed President Neel Kashkari described them as another example of pressure on the U.S. Federal Reserve.

Eurozone

The euro is weakening against the pound but shows mixed dynamics against the U.S. dollar and the yen.

Preliminary February business activity data for the EU were released today. The manufacturing PMI rose from 49.5 to 50.8 points, above expectations of 49.9, returning to expansion territory. The services PMI increased from 51.6 to 51.8, slightly below the forecast of 51.9, while the composite index climbed from 51.3 to 51.9 versus expectations of 51.5. In the bloc’s largest economy, Germany, the indicators rose from 49.1 to 50.7, from 52.4 to 53.4, and from 52.1 to 53.1, respectively, prompting expectations of further acceleration in economic recovery. According to the data, companies will continue to raise prices for goods and services, albeit moderately, allowing the European Central Bank (ECB) to maintain its current monetary policy. Meanwhile, ECB President Christine Lagarde denied reports of her early resignation, telling The Wall Street Journal that she plans to remain in office until the end of her term.

United Kingdom

The pound is strengthening against the euro, the yen, and the U.S. dollar.

Retail sales data released today showed that January volumes rose by 1.8% month-on-month versus expectations of 0.2%, and by 4.5% year-on-year compared with forecasts of 2.8%, marking the highest levels in four years. This reflects stronger domestic demand and improved consumer confidence. Preliminary February business activity data were also positive: the manufacturing PMI increased from 51.8 to 52.0 against expectations of 51.5, while the services PMI held at 53.9, well above forecasts of 51.5, and the composite index rose from 53.7 to 53.9 versus 53.3. Based on incoming data, experts expect UK GDP to grow by 0.3% this quarter.

Japan

The yen is weakening against the pound but shows mixed dynamics against the U.S. dollar and the euro.

Investors are assessing January inflation data. The nationwide CPI slowed from 2.1% to 1.5% year-on-year, below the Bank of Japan’s 2.0% target, while core inflation fell from 2.4% to 2.0%, a two-year low. This could hinder the continuation of a hawkish policy stance. Most economists surveyed by Reuters expect policymakers to raise the interest rate from 0.75% to 1.00% by the end of June, with the probability of a move by April estimated at around 70.0%. Meanwhile, preliminary February business activity data were positive: the manufacturing PMI increased from 51.5 to 52.8, defying expectations of a decline to 51.5; the services PMI rose from 53.7 to 53.8; and the composite index climbed from 53.1 to 53.8.

Australia

The Australian dollar is weakening against the pound and the euro but shows mixed dynamics against the yen and the U.S. dollar.

Preliminary February business activity data released today showed that the manufacturing PMI slipped from 52.3 to 51.5, remaining in expansion territory, while the services PMI declined from 56.3 to 52.2. The composite index fell from 55.7 to 52.0. Overall, Australian business activity is recovering, albeit more slowly than expected, keeping the likelihood of monetary tightening by the Reserve Bank of Australia (RBA) in May on the table.