The British Pound is at its strongest since early Oct, above 1.2350 against the US Dollar. This increase comes on the heels of six days of continuous increases as US Dollar was sold off on Wednesday. New economic data from the UK show that CPI annual inflation has fallen somewhat. It declined to 2.6% in March, a decrease from 2.8% in February. Despite this notable price change in inflation, the effect was negligible on how the Pound Sterling performed.
Our economic outlook is still pretty sober. Global markets are responding to a number of issues, but most notably the newly enacted tariffs between the US and China. Standard Chartered’s economists remarked that these tariffs, set at unprecedented high levels earlier this month, may hinder trade and growth forecasts. We’re going to need an order of magnitude more fiscal stimulus. This counter-stimulus needs to be about 1.0-1.5% of GDP to keep us from crashing through these growth undershooting targets by a long margin.
The most recent batch of UK data surprised March’s real activity growth on the upside by a healthy margin. This increase was supported by a strong services retail sales performance, which saw a 5% year-on-year growth. On Wednesday, the Euro jumped over 1.1350 on the European markets. This action is a departure from a widely positive feeling in currency markets.
The latest UK CPI numbers confirm what is becoming a very clear picture of inflationary pressures easing significantly. This turn could provide much-needed policy space to policymakers as they face unprecedented fiscal and monetary challenges. Although the CPI inflation did not move the Pound much, the rest of the economic picture points to resilience in the face of external headwinds.
“Real activity growth accelerated in March, beating market consensus by a significant margin. Industrial production (IP) growth jumped to 7.7% y/y in March from 5.9% in January-February, likely indicating front-loaded activity.” – Unknown
Profit-taking gold prices continued to display robust market underpinnings, trading on to impressive daily gains near $3,330. Earlier in the day, they even reached an all-time high of just over $3,320. As they search for clues to what these developments might imply for the future course of monetary policy, investors are eagerly tracking these moves.
Former Fed Chair Jay Powell’s remarks coming later today will give more insight on that front. To better understand US economic strategies and their impact on domestic and global markets, don’t miss this important address.
So even as Q1 has produced some very positive signs of economic recovery, analysts are keeping their eyes wide open to possible headwinds. New significant tariffs on trade with China went into effect earlier this month. The trade and growth prospects that these tariffs will dampen are too many to count.
“Despite the solid performance in Q1, the unprecedentedly high bilateral tariffs between the US and China imposed in early April will likely weigh sharply on the trade and growth outlook.” – Unknown
China’s Q1 real GDP growth demonstrated resilience at 5.4% year-on-year. Seasonally adjusted GDP growth eased slightly to 1.2% quarter-on-quarter from 1.6% in Q4-2023. The stronger-than-expected year-on-year growth provides some cushion for meeting an annual growth target of around 5%, especially amid increasing external challenges.