Interest rate cut looming??

Friday saw the US dollar in turbulent times as the US labour department released data showing unemployment had risen 0.3% to 5.1%, the highest in three years. This had been anticipated to a degree and the effects were minimal however some analysts are indicating that this confirms that the US economy is in recession and could cause the Federal Reserve to cut interest rates later this month by up to half a percent which could weaken the dollar even further. Sterling closely tracked the U.S. and showed a decline against the Euro. The Euro remained strong against the major currencies. The Australian dollar continued to be strong even after weak retail figures were released early in the day.

The week ahead

This week is relatively light for data releases but we should see a lot of focus on interest rates with both the BoE and the ECB announcing their decisions on Thursday. Expectations are that the BoE will cut rates with many analysts expecting a drop in base rate to 5% which may well have a negative effect on sterling. This is by no means set but the general opinion is that the rates must be reduced by the summer and after recent comments by members of the MCP (Monetary Policy Committee) it is likely to be sooner rather than later. The ECB also announces interest rates on Thursday which are expected to remain static at 4% in an attempt to hold European inflation rates.

Forthcoming Data Reports

7th Apr 20.00 BST – United States, Consumer Credit – Released by the Board of Governors of the Federal Reserve is an amount of money that individuals borrowed. It shows if consumers can afford large expenses, which can fuel economic growth. However a high figure may also indicate that the economy is overheating, as consumers borrow in order to live beyond their means. A high reading is seen as positive for the USD, whereas a low reading is seen as negative.

10th April 12.00 BST - UK Interest Rates – Interest Rate Decision is announced by the Bank of England. If the BoE is hawkish about the inflationary outlook of the economy and raises the interest rate it is positive or bullish for the GBP. Likewise, if the BoE has a dovish view on the UK economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.

10th Apr 12.45 BST – Euro zone Interest Rates – Interest Rate Decision is announced by the European Central Bank. If the ECB is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive or bullish for the EUR. Likewise, if the ECB has a dovish view on the European economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative or bearish.

10th Apr 13.30 BST – US Trade Balance – Released by the Bureau of Economic Analysis is a balance between exports and imports of total goods and services. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the USD. If a steady demand in exchange for US exports is seen, that would turn into a positive for the USD.