Euro, pound edge up at start of busy week ahead for investors

© Reuters. FILE PHOTO: U.S. dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

By Kevin Buckland and Alun John

TOKYO/LONDON (Reuters) -The U.S. dollar weakened slightly on Monday, at the start of an action-packed week for markets with Britain’s budget, a European Central Bank meeting, U.S. jobs data and important political moments in both China and the U.S. all due.

Eyes were also on Bitcoin, which rose to a more than two-year peak above $65,000 after a quiet weekend, pushed higher in recent weeks by big flows into cryptocurrency exchange-traded funds, most notably in the United States.

The euro rose 0.13% to $1.08, sterling gained 0.19% to $1.2677 and the Japanese yen fluctuated around the closely watched 150 per dollar level. The dollar was last up 0.20% at 150.43 yen.

That left the dollar index – which measures the currency against six major peers – flat at 103.82, oscillating narrowly in the bottom half of its 103.43-104.97 range of the past month.

“It’s going to be a busy week ahead for ‘event risk’ in the U.S. and Europe, which could certainly trigger some pick-up in volatility from the current very low levels,” said Lee Hardman, senior currency analyst at MUFG.

He added there were reasons why the major events could, in isolation, each leave markets unmoved.

In the United States, Federal Reserve Chair Jerome Powell testifies before lawmakers on Wednesday and Thursday, and then there is U.S payrolls data on Friday, with forecasts pointing to a still-solid rise of 200,000 after January’s barnstorming 353,000 jump.

This week also sees “Super Tuesday”, the biggest day in the calendar of U.S. presidential primaries.

“Payrolls could be the bigger mover as Powell is likely comfortable with current market pricing for Fed cuts, while if we get another strong payrolls after the last blowout report that could affect market expectations (for Fed policy),” Hardman said.

RATE EXPECTATIONS

At the start of 2024, markets were pricing in substantial interest rate cuts early this year, but traders have since reduced such bets.

Pricing in derivatives markets now reflect expectations the first Fed cut will come in June, with three to four 25 basis point cuts this year, not far from the Fed’s projections published in December.

As expectations for other central banks, notably the European Central Bank and Bank of England, have moved in near lockstep, currency volatility – partly dependent on changing interest rate differentials – has been strikingly low, and is at its lowest level since the start of the war in Ukraine.

The British budget is due on Wednesday, and Finance Minister Jeremy Hunt has been trying to dampen speculation about big pre-election tax cuts. The European Central Bank (ECB) meets on Thursday.

Most ECB policymakers have been cautious about suggesting that they will be cutting interest rates soon.

Hardman said last week’s stronger-than-expected euro zone inflation data meant the ECB would be unlikely to say anything at this week’s meeting to cause markets to bring forward expectations of the first rate cut, currently seen in June.

The Swiss franc jumped briefly after Swiss February inflation came in a fraction higher than expected at 1.2% compared to the previous year, though still lower than January’s level and well within the Swiss National Bank’s 0-2% target range.

The currency gave back some of those knee-jerk gains and versus the franc, the dollar was up 0.09% at 0.8837 francs and the euro gained 0.23% to 0.9594..

The Australian dollar was down a whisker at $0.6524 with traders awaiting local GDP data Wednesday. Given Australia’s close economic links with China, the currency will also be shaped by China’s annual parliament meeting which begins Tuesday, and at which authorities will announce the GDP goal and are expected to unveil moderate economic stimulus plans.