The brief dip in the USD on Wednesday was quickly reversed when the Philly Fed manufacturing index reported a scorching figure on Thursday, prompting the greenback to bounce back.  This surge in the Philly Fed index marked its highest level since 2022, underscoring the robustness of the US economy and driving US two-year bond yields up to 5.00%, though they later retreated.

Following the Office for National Statistics' announcement this morning of stagnant UK retail sales in March 2024 (0% month-on-month), we witnessed a decline in GBP.  However, losses were mitigated by a positive revision from 0% to 0.1% for February's figures. Expectations had been set for a robust growth of 0.3% month-on-month, and GBP/EUR exchange rate dipped from 1.1678 to 1.1668, reflecting market disappointment. Similarly, GBP/USD exchange rate fell from 1.2414 to 1.2405.

The ONS reported increases in sales for hardware stores, furniture shops, petrol stations, and clothing stores. However, these gains were counteracted by declines in food sales and department store activity. Retailers in department stores informed the ONS that high prices had adversely affected trading.

GBP appears poised to sustain its downward trajectory against both the EUR and USD, marking another week of losses against these currencies.  These disappointing retail figures only contribute to the prevailing gloomy sentiment surrounding GBP.

Bank of England Governor Andrew Bailey's remarks midweek have notably contributed to the GBP's underperformance. Bailey's comments to fellow central bankers in Washington indicated that the latest inflation data didn't warrant concern.  Markets interpreted this as a clear indication that he intends to advocate for an interest rate cut in June.

Should a rate cut indeed materialize in June, it would coincide with a similar move by the ECB, potentially stabilising the GBP/EUR exchange rate within its current 2024 range for the foreseeable future.

GBP missed an opportunity to leverage the better-than-expected inflation figures midweek due to remarks by Bank of England Governor Andrew Bailey. He hinted at an imminent interest rate cut, dampening the currency's performance.

Despite Wednesday's release of inflation data showing robust levels for March, Bailey appeared unconvinced by the numbers. "Next month's inflation number will show quite a strong drop," he remarked, indicating that the recent drop in UK inflation aligns with the Bank of England's projections.  Market observers have construed Bailey's comments as a signal of his intention to pursue an interest rate cut come June.

However, Bailey seems satisfied with the notion that the Bank can reduce rates without igniting inflation. This lays the groundwork for a possible scenario where UK rates could decrease more rapidly than those in the U.S. and potentially even the Eurozone.  Such disparity is likely to exert downward pressure on the Pound.

This concern was evident in the GBP/EUR exchange rate, which dipped by 0.28% on the day, slipping below 1.17 and hovering around 1.1670 at the time of this writing.  Meanwhile, the GBP/USD exchange rate remains relatively stable near 1.2464, primarily influenced by a broadly weakened USD.

GBP received a significant boost as the latest UK inflation data surpassed forecasts, tilting the odds in favour of an August interest rate reduction.   Following the announcement that CPI inflation in the UK rose to 3.2% year-on-year in March, down from February's 3.4% but surpassing market expectations of 3.1%, the GBP/EUR exchange rate surged to 1.1735.

The crucial core CPI inflation rate, as reported by the ONS, increased by 4.2% year-on-year, a slight drop from 4.5%, yet still surpassing market forecasts of 4.1%. Meanwhile, services inflation saw a slight decrease from 6.1% to 6.0%.  However, this level remains elevated, indicating that an immediate rate cut from the Bank of England (BoE) might not be on the horizon.

GBP slipped against both the EUR and USD following the UK's unexpected uptick in unemployment, though its decline will likely be tempered by robust wage growth, fostering a cautious stance at the Bank of England (BoE).  GBP weakened as the Office for National Statistics revealed a rise in the UK's unemployment rate to 4.2% in February, surpassing market expectations of 4.0%.

Meanwhile, the significant average earnings metric, including bonuses, remained steady at 5.6% in February, exceeding market projections of 5.5%. Excluding bonuses, average earnings saw a slight dip to 6.0% from the previous month's 6.1%, yet still outpaced market forecasts of 5.8%.

Former BoE Monetary Policy Committee member Andrew Sentance suggests that UK regular pay growth continues to exceed levels "well above" the 3-4% range typically associated with 2% inflation.  Sentance notes, "Pay growth has only decreased by less than 2 percentage points from its peak of 7.9% last year. There is still a significant distance to cover before wage increases return to a sustainable pace."

The USD may receive another lift as US industrial production data is expected tonight.  After a 0.1% rise in February, headline industrial output is projected to climb by 0.4% month-on-month in March.  Core manufacturing likely expanded by 0.3% during the month, with an increase also anticipated in vehicle output.

Following a notable decline in February, it's anticipated that utilities will rebound. However, mining activity likely decreased throughout the month, primarily driven by a significant drop in coal production.  The USD has attained record highs amid diminishing expectations of Federal Reserve easing – this trend could persist, further bolstering the currency.