13/11 A look at the week ahead for GBP, EUR and USD
GBP
Sterling faced a challenging week last week, experiencing declines against most G10 currencies. The predominant theme was a resurgence of risk aversion influencing major currency movements. Numerous pessimistic remarks from the Bank of England resulted in Sterling struggling to find support and navigate any upward trajectory.
During his Monday speech, Huw Pill, the chief economist of the Bank of England, discussed the possibility of a rate cut in August 2024, stating it ‘doesn't seem totally unreasonable, if we have the restrictive policy for too long, then the danger is we trigger an excessive slowdown in the economy.’
Following that, UK housing data was unveiled on Tuesday, exerting additional downward pressure on the Pound. Despite the British Retail Consortium reporting retail sales figures that exceeded expectations, the positive news was largely overshadowed by diminished demand for loans, primarily influenced by elevated mortgage costs. The EY ITEM Club projects the weakest loan demand in a decade.
Sterling faced difficulty gaining momentum in the middle of the week, encountering additional headwinds from further remarks by the Bank of England's Pill. Pill expressed that, "Having established monetary policy in restrictive territory, it’s not the case that we need to raise rates in order to bear down on inflation. Sustaining rates at their current restrictive level will continue to bear down on inflation."
The most recent GDP release in the UK seemed to reinforce Pill's assertion that elevated interest rates could pose a threat to economic growth. The data for Q3 revealed a stagnation in the British economy, marking the weakest performance in four quarters. This decline was partially attributed to a contraction in the services sector.
Looking at the week ahead, a plethora of data from the UK is expected to instigate market movements.
Tuesday will spotlight the UK's most recent employment data. Should there be an uptick in unemployment for September, it could lead to a decline in the value of the Pound. Should there be a midweek alleviation in UK inflation, the Pound might experience a positive impact as investors weigh the prospect of reduced price pressures.
By the week's conclusion, a surge in UK sales growth has the potential to uplift the Pound. However, external factors such as the conflict in Gaza may divert trading sentiment.
EUR
Last week, the Euro found support amid a prevailing risk-off sentiment, attracting investors who were deterred by perceived riskier assets. While not deemed as a major 'safe haven' currency, the single currency is favored over more volatile currencies during periods of economic uncertainty.
As the week commenced, the Euro was lifted by stronger-than-anticipated German factory orders, with the reading unexpectedly increasing by 0.2% in September. Additionally, Germany's finalized service sector PMI surpassed expectations, although it remained in contraction territory.
On Tuesday, the Euro faced pressure against various counterparts as German industrial production fell short of expectations. Thomas Gitzel, Chief Economist at VP Bank, commented: ‘The industry-heavy German economy is dependent on production in order to achieve reasonable economic growth rates,’ adding that industrial production this year has been weak.
Despite a larger-than-anticipated decline in retail sales throughout the bloc, EUR/GBP persisted in strengthening, extending its gains midweek. Undoubtedly, a negative market sentiment played a role in bolstering the exchange rate.
Thursday brought headwinds for the Euro, as gloomy Eurozone data and pessimistic forecasts from the European Central Bank's Vice-President Luis de Guindos indicated a more negative growth outlook than previously anticipated.
On Friday, EUR/GBP once again showed an upward trend, overcoming initial concerns preceding a speech by ECB President Lagarde. While Lagarde did not signal an intention to raise interest rates, she mentioned that maintaining the rate at 4% should contribute to price stabilization.
Anticipating the beginning of the week, a speech from the ECB's de Guindos has the potential to impact EUR trading, if any hints are given towards near term monetary policy.
Following that, a decline in Germany's ZEW economic sentiment index might negatively impact Euro exchange rates, with the indicator projected to have dropped to –1.1 for the month of November.
In the middle of the week, the release of Eurozone industrial production figures could exert downward pressure on the single currency if the numbers show a decline.
USD
The US Dollar drifted through much of last week, with limited notable US data available to stimulate the currency.
At the beginning of the week, an unforeseen reduction in China's trade surplus prompted a period of cautious trading, leading to a rush to the safe-haven USD amid global economic uncertainties.
While the Greenback initially surged, cautious remarks from Federal Reserve policymakers later diminished expectations of a Fed interest rate hike, leading to a stumble in the USD.
Thursday brought headwinds for the Greenback as weaker-than-expected employment data indicated a gradual easing in the US labor market, undermining speculations of a restrictive monetary policy.
Nevertheless, the anticipated speech from Federal Chair Jerome Powell on Thursday evening capped the losses for the USD. Powell's comments, conveying a notably more restrictive stance towards monetary policy, appeared to boost the Greenback overnight, instilling confidence among USD investors as the week concluded.
Anticipating the future, the upcoming release of the latest core inflation data for the US next week is expected to be the primary catalyst for currency movements.
On Tuesday, the projected annual core inflation reading for October in the US is expected to remain at 4.1%. Persistent inflation could lead to an increase in Fed rate hike expectations, potentially bolstering the USD.
On Wednesday, an anticipated decline in US retail sales could have a negative impact on the Greenback. Signs of diminished consumer activity might erode expectations of a Fed rate hike.
Data for the Week ahead:
Monday
10.00 EUR European Commission Economic Growth Forecasts
16.05 Bank of England's Mann Speech
Tuesday
07.00 GBP Claimant Count Change
07.00 GBP Employment Change
07.00 GBP ILO Unemployment Rate
07.45 CHF Swiss National Bank's Chairman Jordan Speech
10.00 EUR Gross Domestic Product
13.30 USD Consumer Price Index
23.50 JPY Gross Domestic Product
Wednesday
02.00 CNY Industrial Production
02.00 CNY Retail Sales
07.00 GBP Consumer Price Index
09.30 GBP Bank of England's Monetary Policy Report Hearings
13.30 USD Producer Price Index
13.30 USD Retail Sales
Thursday
00.30 AUD Unemployment Rate
Friday
07.00 GBP Retail Sales
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