GBP/USD, EUR/USD Forecast: Two trades to watch

GBP/USD falls after UK inflation cools & ahead of the Fed

UK CPI eases to 3.4% YoY in Feb from 4%
BoE interest rate decision tomorrow
Fed rate decision is later today
GBP/USD falls to 1.27

GBP/USD is falling as investors digest weaker-than-expected UK inflation and look ahead to the Federal Reserve interest rate decision.

The ONS data showed that CPI rose 3.4% YoY in February, down from 4% in the previous month and lower than the expected level of 3.5%. This marked the lowest level for inflation in 2 1/2 years and keeps the Bank of England on track to reduce interest rates this year.

The timing of the first rate cut remains unclear. The Bank of England meets tomorrow but is expected to leave interest rates unchanged. Bank of England governor Andrew Bailey has signaled that he needs further evidence that prices will cool back towards the 2% target before starting to loosen monetary policy.

Data shows that inflation is heading in the right direction and could hit the 2% target in the coming months. However, services inflation was ahead of expectations, and the Bank of England has been watching this area closely.

The central bank will likely want to see April's inflation and wage data before deciding on the timing of the first rate cut.

The market is currently pricing in a 25 basis point rate cut in August, with just one other move of that size by the end of the year. This is more conservative than the expectations for the Federal Reserve, where the first rate cut could come as soon as June.

The Federal Reserve's interest rate decision later today will shed more light on the Fed's next steps. A more hawkish-sounding Fed could pull GBP/USD lower.

GBP/USD technical forecast

GBP/USD is falling, extending the drop from the 1.29 2024 high. The price is testing the multi-month rising trendline at 1.27. A break below here and 1.2670, the March low, opens the door to 1.26, a level that has acted as support and resistance on several occasions over the past few months. Below here, the 200 SMA at 1.2580 comes into play.

On the upside, should the trendline support hold, buyers could look for a rise towards 1.2770, the February high, ahead of 1.2830, the December high.

EUR/USD falls ahead of the Fed rate decision, ECB Lagarde’s speech

Fed rate decision at 18:00 GMT
No rate change is expected, but a more hawkish tilt is possible
ECB President Lagarde speaks
EUR/USD tests 200 SMA support

ER/USD is heading lower on USD strength ahead of the keenly awaited Federal Reserve interest rate decision and a speech by ECB president Christine Lagarde.

This week has been a big week for central bank meetings, and today is the Federal Reserve’s turn. Policymakers are not expected to adjust the interest rate; however, following two straight months of hotter-than-expected inflation, they could adopt a more hawkish stance.

Attention will be squarely on the new projections and the dot plot, which lays out the Fed’s expected path for rates over the coming 12 months. In December, the dot plot signaled three rate cuts this year; there is a possibility that this could be downgraded to two.

Heading into the meeting, the market is just pricing in a 60% probability of rate cuts starting in June and an 80% probability of a rate cut in July. Should the Fed adopt a more hawkish tilt, pushing back rate cut expectations, the US dollar could get a boost.

Meanwhile, the euro will look to speeches by ECB president Christine Lagarde and chief economist Philip Lane.

Their comments will come after yesterday's wage growth data showed wage growth easing to 3.1% in Q4, down from 5.2%.

At the ECB meeting, President Christine Lagarde highlighted strong wage growth as a reason to be cautious about cutting interest rates too soon. Investors will monitor whether the fresh data has changed their outlook.

Eurozone consumer confidence is expected to improve in March to -15, up from -15.5 in a sign that the region's economic outlook could be slowly improving.

EUR /USD forecast – technical analysis

EUR/USD continues to fall away from the March high of 1.0980, falling below the 6-week rising trendline. Yesterday, it tested support of the 200 SMA at 1.0835.

Should sellers gain traction and break below the 200 SMA, the selloff could accelerate towards 1.08, the March low.

Should buyers successfully defend the 200 SMA, resistance can be seen at 1.09, the weekly high, ahead of 1.0980, the March high, and 1.10, the psychological level.

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.