GBPEUR

Sterling made significant gains versus the euro last week, as a clear divergence in both
interest rate cut timing and scope for each currency for 2024 allowed strong technical
gains. With UK inflation still relatively high at 4.5%, rate cuts are currently not forecast
until June, whereas last week’s surprise lower inflation of just 2.4% in the eurozone drove
far more aggressive expectations of a cut in March from the European Central Bank,
with five further cuts expected throughout the year!

GBPUSD

Sterling consolidated its gains last week, testing 1.2720 several times as the dollar generally
remained weak, and the wider ‘risk on’ markets theme supported risk sensitive sterling. Bank
of England Governor Andrew Bailey defended himself after scathing comments over the
growth prospects for the UK being the ‘worst he’s seen in his career’.

EURUSD

The euro pared gains last week, largely driven by the lower-than-expected midweek EU
inflation data release of 2.4% versus expectations of 2.7%. This proved the death knell for
any remaining European Central Bank hawks, and solidified the aggressively dovish
outlook for the euro, which currently prices the first cut in March 2024, and up to five
cuts and >1% of cuts across the year.