Sterling has begun the week on the backfoot against both the dollar and euro. The pound declined in early trading when data released this morning showed the UK’s economy slowing more sharply than expected in February. Official figures from the Office of National Statistics (ONS) showed Gross Domestic Product, considered as a broad measure of economic activity, rising by 0.1% in February, down from 0.8% in January and below consensus forecasts of 0.3%. The ONS said Britain’s economy was 1.5% larger than it was two years earlier, just before the country was hit by the Covid pandemic.
After registering its lowest weekly close in nearly two years on Friday, the euro has started the week still under pressure from the dollar. Although there was some relief for the single currency when the far right did not win the first round of the French presidential elections, the election runoff on April 24 still appears too close to call at this stage. A victory by far-right candidate Marine Le Pen would be a similar jolt to the establishment as Britain’s Brexit vote to leave the European Union or Donald Trump’s presidential win in 2017 and could force a sell-off for the euro. The latest Ipsos poll shows that President Macron is leading Le Pen 54% vs 46% in the second round, much narrower than in 2017 when Macron beat Le Pen with 66.1% of the votes. Looking ahead this week, the European Central Bank will have their highly anticipated policy meeting on Thursday.
The dollar has opened the week steady after an impressive run last week. On Friday, the benchmark US treasury yield hit a 3-year high above 2.7%, while the dollar index posted its largest weekly percentage gain in a month advancing to 100 for the first time in nearly two years. The greenback’s demand is the culmination of bullish factors, namely geopolitical risks arising from the Ukraine conflict and the Federal Reserve Bank’s increasingly hawkish outlook for interest rates. With no headlines pointing to any progress on peace talks, the dollar is expected to hold on to its gains for now. Later today, traders will look ahead to speeches given by Fed policymakers John Williams and Michelle Bowman.
16.30 USD Fed’s Bowman speech
17.00 USD Fed’s Williams speech