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Currency Market Update - 15th May 2024

Currency Market Update Recent market focus has centered around European Inflation figures with Germany’s April Inflation figures released yesterday. Inflation in general rose slightly more than anticipated off the back of strong food and energy prices, initially denting investors hopes on an Interest Rate cut next month.

Consumer prices increased by 0.1% in April compared to the same period 12 months prior, however when stripping food and energy prices out, Inflation had actually fallen from 3.3% to 3%. What this shows is the difficulty that many Central Banks globally are experiencing in bringing inflation down to the preferred 2% level.

French inflation has also increased by 0.3% on a monthly comparison, and it wouldn’t be a shock to see incremental monthly increases for both countries throughout this summer as Germany host the Euro’s football tournament and Paris play hosts to the Olympics later this summer. Aside from this, it’s still expected that we see an interest rate cut by The European Central Bank on their next meeting, June 6th. The telling, and deciding factor for this will be Euro-Zone’s inflation release next Tuesday. Current figures suggest inflation without food and energy prices will have also dropped from 2.9% to 2.7%. Any overshoot could cause some uncertainty for traders and investors as to whether the rate cut goes ahead, but on the other hand if inflation was to fall further then this would more than likely cement the rate cut in June.

Sticking with inflation, the focus shifts to The US for their April Inflation. Both inflation releases, with and without food and energy prices are expected to have fallen marginally, but more importantly edging closer to the 3% barrier. Analysts and traders are nervously awaiting this release, due to a possible scenario where another stronger than expected reading could spark more worries that their strong economy may force The Federal Reserve into raising rates as opposed to cutting. Any reading around the 3.5% mark or lower would again similarly to The ECB, cement the possibility of The Federal Reserve transitioning to a phase of interest rate cuts.

For both the EUR & USD, possibilities of interest rate cuts by both central banks should lead to weakness for both currencies as lower interest rates usually deter investors away.



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