11/12 A Look at the week ahead for GBP, EUR and USD

The Pound exhibited unpredictable movements against the Euro early in the week, with the absence of noteworthy UK data restricting clear and decisive GBP trading in either direction. Economic uncertainty played a role in fostering a downward trend, as even hawkish signals from the Bank of England were unable to dispel concerns.

Unstable growth projections and economic indicators thwarted efforts to adopt a bullish outlook among economists, especially as Tuesday's domestic sales monitor for November fell short of estimates. Despite the service sector PMI surpassing expectations, traders maintained skepticism regarding sustained growth in the UK's service sector.

In the middle of the week, Bank of England Governor Andrew Bailey reiterated the bank's stance on maintaining higher interest rates for an extended period, declaring that interest rates are expected to persist at their current levels for an extended period to achieve a sustained return of inflation to the target.

Nevertheless, the British Pound experienced a decline following an initial upswing against the Euro, primarily due to construction data falling short of forecasts and a prevailing risk-off sentiment dampening overall morale.

On Thursday, the Pound surged in response to the revelation that UK house prices had risen in November. However, the positive momentum was short-lived, overshadowed by concerns about a potential economic slowdown in China, the world's second-largest economy.

The absence of noteworthy UK data limited the upward momentum of the GBP by the week's end. However, the release of a quarterly survey from the Bank of England might have provided slight backing to the Pound. In November, UK public inflation expectations for the upcoming year were recorded at 3.3%, a decrease from 3.6% in August.

As the week begins, the Pound to Euro exchange rate might face a decline in response to a rise in UK unemployment. The Recruitment and Employment Confederation (REC) trade body cautioned the Bank of England last week, signaling that demand for permanent hiring among UK businesses has experienced the second-fastest drop since the onset of the pandemic.

Thursday's anticipated decline in the UK's monthly GDP reading is expected to exert downward pressure on the Pound. Additionally, the Bank of England's interest rate decision on the same day has the potential to influence trading in either direction, depending on officials' economic outlook. A hawkish statement could intensify pressure on the currency if traders perceive an expectation of prolonged economic challenges due to restrictive monetary policy.

EUR

Last week, the Euro faced challenges in gaining strength against other currencies, primarily due to disappointing economic data from the Eurozone.

Although Germany's trade surplus surpassed expectations on Monday, the Euro's gains were limited by perceived divisions within the European Central Bank.

Bundesbank head Nagel remarked, "We have not yet won the fight against inflation," differing from comments made by ECB council member Francois Villeroy de Galhau, who mentioned that disinflation forces "are even faster than expected" and suggested there would be room for rate cuts in 2024.

Despite a better-than-expected German services PMI on Tuesday, the single currency didn't receive significant support, potentially influenced by USD strength following robust ISM service-sector data. Subsequently, the Euro faced additional headwinds on Wednesday with a sharp decline in German factory orders. However, EUR/GBP managed to recover some losses as retail sales in the Eurozone saw an increase in October.

On Thursday, the second-largest economy in the Eurozone experienced a contraction in industrial production, and Q3 GDP growth for the entire Eurozone also contracted, while final employment data fell short of estimates. The Euro weakened against the Pound, although losses may have been limited by headwinds facing the US Dollar. The US Dollar witnessed volatility as jobless claims surpassed forecasts, and investors refrained from making significant bets in anticipation of Friday's nonfarm payrolls.

On Friday, the final CPI figures for November affirmed that German inflation moderated from 3.8% to 3.2%, representing the lowest inflation rate since June 2021. The Euro exhibited mixed trading following the release, somewhat restrained by tailwinds favoring the US Dollar.

Previewing the upcoming week for the Euro, Tuesday's spotlight is on a key release. Germany's economic sentiment index is anticipated to reveal a slight weakening in morale in the Eurozone's largest economy, which could potentially impact the single currency negatively.

USD

As the week commenced, the US Dollar gained strength against riskier assets, driven by a generally negative market sentiment. Moreover, US factory orders declined more than anticipated, intensifying the dampening effect on risk appetite and providing additional strength to the USD.

On Tuesday, the US Dollar initially advanced, propelled by a services PMI that surpassed forecasts, signaling resilient economic activity. However, as the session unfolded, USD gains were limited due to an unexpected decline in JOLTs job openings.

Wednesday saw ADP employment data coming in below forecasts, sparking concerns among investors that the US labor market might be showing signs of cooling.

Subsequently, on Thursday, the US Dollar started to retreat in response to a rise in initial jobless claims, signaling the emerging picture of a decelerating labor market.

However, on Friday, the US Dollar started to strengthen after the release of November's non-farm payrolls data, which exceeded forecasts significantly.

Consequently, the US jobs market seemed more robust than earlier data indicated, enabling USD exchange rates to gain momentum.

Previewing the upcoming week for the US Dollar, a week filled with events kicks off on Tuesday with the release of the latest US inflation data. Economists anticipate a moderation in headline inflation, but expect core inflation to stay at 4%. This development could reignite expectations of Federal Reserve rate hikes, potentially bolstering the Greenback.

Subsequently, the Federal Reserve is scheduled to announce its latest interest rate decision on Wednesday evening. The consensus is for the Fed to maintain unchanged interest rates, yet it is anticipated to resist market expectations of imminent rate cuts. If successful in its messaging, the USD may strengthen against its counterparts.

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Data for the week ahead

Monday

22.20 AUD Reserve Bank of Australia Governor Bullock Speech

Tuesday

07.00 GBP Claimant Count Change

07.00 GBP Employment Change

07.00 GBP ILO Unemployment Rate

13.30 USD Consumer Price Index

13.30 USD Consumer Price Index excluding Food & Energy

23.50 JPY Tankan Large Manufacturing Index

Wednesday

13.30 USD Producer Price Index

19.00 USD Federal Reserve Interest Rate Decision

19.00 USD Federal Reserve Monetary Policy Statement

19.00 USD FOMC Economic Projections

19.00 USD Interest Rate Projections

19.30 USD FOMC Press Conference

21.45 NZD Gross Domestic Product

Thursday

00.30 AUD Employment Change

00.30 AUD Unemployment Rate

08.30 CHF SNB Interest Rate Decision

08.30 CHF SNB Press Conference

12.00 GBP Bank of England Interest Rate Decision

12.00 GBP Monetary Policy Report

13.15 EUR ECB Monetary Policy Statement

13.30 USD Retail Sales

13.45 EUR ECB Press Conference

Friday

02.00 CNY Industrial Production

02.00 CNY Retail Sales

08.30 EUR German HCOB Composite PMI

08.30 EUR German Manufacturing PMI

08.30 EUR German Services PMI

09.00 EUR HCOB Composite PMI

09.00 EUR Manufacturing PMI

09.00 EUR Services PMI

09.30 GBP S&P Global/CIPS Composite PMI

09.30 GBP S&P Global/CIPS Manufacturing PMI

09.30 GBP S&P Global/CIPS Services PMI

14.45 USD S&P Global Manufacturing PMI

14.45 USD S&P Global Services PMI