Chamber FX: April Foreign Exchange Forecasts

Author - Jasmin Brown

Date published:

As a Chamber member, you have access to a bespoke FX and international payments service, through our FX partner, Moneycorp.

They’ve outlined the major exchange rate forecasts on their three most traded currency pairs for April here.

April Overview

Inflation & GDP growth data will be a key driver of FX markets again this month.

  • UK CPI is lagging above the others with inflation at 3.4% last month, but this should continue to drop over the coming months. The Bank of England expects the 2% target rate to be met this year barring any more major shocks to the global financial system like we have seen multiple times in recent years. UK CPI is released on 17th April.
  • UK GDP growth will be under the spotlight, having gone into a technical recession in Q4 last year. Higher GDP generally should be good for GBP and growth in general for Q1 will be seen very positively. UK GDP is released on 12th April.
  • US CPI is holding around 2.4-2.5% over recent months and looks very sticky. The US Federal Reserve don’t seem too worried but they are focussed on getting that down to 2% as a minimum, so we should expect to see that this quarter. US CPI is released on 10th April.
  • US GDP growth on the other hand is very healthy, so isn’t really a problem that the US needs to overcome, unlike the UK & EU.
  • Eurozone CPI is a mixed bag throughout the bloc, but is sitting around 2.8% y/y according to Eurostat and the ECB have the same 2% target and so they will want that to drop in line as soon as possible.
  • GDP growth on the other hand was a dangerously low double-doughnut 0.0% for Q4 2023, with Germany & Ireland dragging the figures down significantly.

Interest rates, in a nutshell, are expected to start being cut from the June meetings onwards in the UK, EU & US. Interest rates were put up as a way of controlling inflation and now inflation is lower, the next logical step is that the central banks cut interest rates to promote borrowing, spending, and ultimately economic growth.

  • The UK is the least likely to cut interest rates early, with inflation sticking higher than the rest, so we currently expect a rate cut in August or September. However, if inflation stays high they may even wait longer to ensure inflation is fully under control.
  • The US Federal Reserve should be starting to cut rates in June or July, despite inflation staying higher than the target level.
  • The European Central Bank are most likely to cut first, in their meeting in June. Inflation in the EU is relatively under control, and some of the major Eurozone economies are struggling with growth so could do with a boost in economic activity.

For FX markets, which are being driven primarily by interest rate expectations at the moment, the outlook above gives us a clear view of what should happen and therefore should be largely priced into the current rates. The big market movements will occur when something unexpected happens. I have given a few theoretical examples below:

  • If inflation stays flat or higher than previous months, the associated currency should strengthen as this means interest rates will likely stay higher for longer.
  • If GDP growth drops dramatically, the associated currency should weaken as this is obviously bad for an economy but also because this would likely mean interest rates will be cut sooner to promote growth.
  • A little further away, but if the ECB, US Fed or BOE signal/decide to cut interest rates later than the timeframes given above, this will be good for the associated currency in the short-term.

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