Last week was awash with important central bank announcements, and one or two major surprises to boot.

Perhaps the most significant announcement was that from the Bank of Japan. The BoJ raised its policy rate for the first time in seventeen years on Tuesday, an historic move that ended eight years of negative rates. The yen, however, still sold-off against its peers, as the bank’s communications were littered with dovish sentiment. The Swiss National Bank delivered the complete opposite, shocking investors by slashing rates and hinting that it could intervene in the FX market in order to weaken the franc, which promptly lost ground.

Sterling also struggled towards the end of the week amid further signs of UK disinflation and a dovish shift from the Bank of England. Meanwhile, the US dollar once again ended atop of the G10 FX performance rankings, despite the FOMC indicating that it remained on course to cut the fed funds rate on three occasions in 2024.

This week bodes to be a slightly quieter week in markets, although speeches from ECB President Lagarde (Tuesday), revised UK and US growth figures (Thursday) and the latest US PCE inflation report (Friday) will undoubtedly be worth keeping tabs on.

GBP

Last week was a rather chastening one for the pound. The stage was set for a dovish pivot from the Bank of England before Thursday’s rate decision, after the February inflation report missed market estimates. Both the headline and core measures of consumer price growth fell short of expectations, with the former easing to its lowest level since September 2021, and the latter January 2022.

Sterling was subsequently hit by a double whammy from the MPC. Not only did both of the two hawks change their vote in favour of no change (markets had believed that only one would do so), but there was also a surprise addition to the statement, with the bank saying that things were ‘moving in the right direction’. This is a clear indication that the BoE sees cuts as not too far away, with markets quick to almost fully price in the June meeting as the start date for UK policy easing.

EUR

The past few weeks have been characterised by a renewed sense of optimism surrounding the Euro Area economy, which has provided some decent support for the common currency. For the most part, macroeconomic news in the bloc appears to have turned a corner. Last week’s business activity PMI numbers remained at levels consistent with stagnation, albeit both the services and composite indices advanced in March relative to the previous month, with the latter now only just below the key level of 50 and at its highest level in nine months.

A good gauge of this improved showing is Citigroup’s Economic Surprise Index for the bloc, which is now not only back in positive territory for the first time since May, but above both of its US and UK equivalents. There will be no major economic data in the Euro Area this week, although speeches from ECB members Lagarde and Lane will be closely watched by investors.

USD

The March Federal Reserve policy announcement was actually greeted with a bout of immediate dollar weakness. The FOMC stressed in its statement that more evidence on inflation was needed before it could lower rates, although it unexpectedly maintained its call for three rate reductions this year after market participants had braced for an upgrade in the 2024 median dot to show just two.

The move lower in the dollar was short-lived, however. This could perhaps be attributed to the shift upwards in the Fed’s longer-term interest rate projections, notably the change in the 2025 dot to signify only three cuts next year as opposed to four. The dovish swing from many of the world’s other major central banks, notably the BoE and SNB, has also bolstered the appeal of the dollar, particularly given high nominal Fed rates and the strong performance of the US economy. Thursday’s Q4 GDP number is set to remain unrevised, but we could see some heightened activity around Friday’s PCE inflation print – the Fed’s most closely watched measure of US inflation.