Sterling takes the shine off euro on economic convergence
2024-01-24
Summary:
The pound hits a 4-month high vs. the euro, indicating a resilient UK economy. The BOE may delay rate cuts compared to other central banks.
The pound touched its highest against the euro in four months on Tuesday, supported by indications that the British economy is holding up and the BOE will likely cut rates later than its peers.
Britain posted a smaller-than-expected budget deficit of £7.77 billion last month, less than half the figure a year earlier, according to the ONS. That opens up room for tax cut in March budget.
The UK might have slipped into a technical recession just like the eurozone. Better economic prospects will boost Rishi Sunak’s Conservatives ahead of the election expected this year.
Market pricing shows roughly a 50% chance the central bank will begin cutting rates in May, though this still seems be too soon for it which has voiced concern about sticky inflation.
The flash estimate of the consumer confidence indicator in the eurozone fell to -16.1 in January, underling how optimistic people feel about the economy amid high inflation and stagnant growth.
Lagarde told last week’s World Economic Forum in Davos that a rate cut “is likely” by the summer, but other ECB policymakers have signaled recently that investors were ahead of themselves.
Bullish MACD price divergence is present for the pair until the 50 SMA. Once above that level, the euro will be set to challenge the recent high around 0.8700 to bolster a bullish outlook.
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