20/11 A look at the week ahead for GBP, EUR and USD
The British Pound experienced a week of volatile trading marked by changes in risk sentiment and inflation data that fell below expectations.
The British Pound saw an initial uptick last week following the release of the UK's latest employment data, which exceeded expectations on Tuesday. Sterling registered modest gains amid speculation that the Bank of England was contemplating further interest rate hikes, supported by a steady unemployment rate and increasing real wages.
Nevertheless, the British Pound swiftly pulled back on Wednesday, as both headline and core inflation turned out to be much milder than expected. With core inflation plummeting in October to 4.6%, a decrease from September's 6.7%, the GBP lacked direction as investors interpreted the cooling Consumer Price Index (CPI) data as an indication that the Bank of England might have concluded its cycle of interest rate hikes.
On Thursday, the British Pound experienced uncertainty as investors grappled with declining UK inflation and reduced expectations for interest rate hikes.
Towards the end of the week, the British Pound saw a decline as the UK's recent retail sales report unexpectedly contracted by 0.3%, contrary to the anticipated growth of 0.3%. The decrease in UK consumer activity heightened concerns about a potential recession, concluding the week on a gloomy note for the Pound. Nevertheless, a cautiously optimistic sentiment eventually enabled Sterling to recover some of its earlier losses.
Looking forward, attention will be on the UK's Autumn Statement scheduled for Wednesday. If the formal economic update from the UK Government presents a pessimistic outlook to the House of Commons, the British Pound could face challenges amid indications of economic slowdown. Any hint of an imminent recession in the UK might diminish investor interest. Additionally, the statement may disclose significant alterations to tax and spending decisions, potentially influencing movements in GBP.
Moreover, Bank of England Governor Andrew Bailey is scheduled to deliver a speech on Monday. Investors will likely scrutinize Bailey's remarks for any indications of potential easing in monetary policy in the upcoming months. If Bailey adopts a dovish tone, especially in the context of persistently declining expectations for interest rate hikes, the British Pound may face challenges.
On Thursday, the UK's preliminary purchasing managers index (PMI) surveys for November are set to be unveiled. Projections suggest that both the services and manufacturing PMI will likely remain below 50, indicating a continued contraction and stagnation in economic activity. If the actual data aligns with these forecasts, sentiment towards the British Pound may turn negative.
EUR
The Euro faced challenges against other currencies at the beginning of the week, with optimistic market sentiment diverting support away from the relatively safe-haven currency.
On Tuesday, the Euro gained support from better-than-anticipated employment figures and the latest ZEW economic sentiment index. German sentiment notably improved to 9.8 in November, surpassing market expectations for an increase to 5.
In the middle of the week, Euro trading displayed a mixed performance. The currency benefited from a weaker US Dollar, but this positive momentum was offset by disappointing industrial production data. Industrial production in the Euro area contracted by 1.1% in September 2023, following a growth of 0.6% in August.
On Thursday, the Euro found support on the back of expectations of a more hawkish stance from the European Central Bank (ECB). Although the comments made on that day were unremarkable, policymakers later clarified that while additional interest rate hikes were not warranted, it was too early to contemplate imminent rate cuts.
Friday saw the Euro trade in a mixed range. Nevertheless, confirmation that inflation in the bloc rapidly cooled last month increased bets that the ECB is done tightening – a lack of hawkish commentary from the central bank left the Euro somewhat directionless.
Looking forward, the Euro's economic calendar is relatively quiet in the early part of the week but becomes more active later on. Thursday features the release of German and Eurozone Manufacturing and Services PMI data, along with the publication of the ECB Monetary Policy Meeting accounts. Any statements from policymakers during this period could impact the direction of Euro trading.
USD
The US Dollar experienced a sharp decline in the initial days of the previous week, prompted by the release of the latest US inflation data.
The US Dollar faced a notable decline on Tuesday as cooler-than-expected US inflation data substantially diminished expectations of Federal Reserve rate hikes. This development triggered a risk-on sentiment, further impacting the safe-haven status of the USD.
A modest increase in October's retail sales provided some support for the Greenback on Wednesday. However, the upside potential for the USD was constrained after the release of US jobs data for November. The reported increase in unemployed individuals in the US indicated a gradual slowdown in the US labor market, adversely affecting the US Dollar.
On Thursday, the US Dollar faced pressure as declines in US manufacturing during October indicated signs of a slowdown in the production-heavy economy.
As Friday's session came to a close, the USD hovered near its monthly lows, anticipating additional crucial data releases.
On Tuesday, the release of minutes from the Federal Reserve funds interest rate decision meetings is scheduled. If the report reveals additional dovish stances from policymakers, the USD may experience selling pressure.
The unveiling of the most recent employment data on Wednesday has the potential to negatively impact the USD. If the data continues to show a decline in US employment and implies a gradual weakening in the American labor market, the USD may face downward pressure.
On Friday, the latest US PMIs are also due for release. Should November’s PMIs rise into growth territory as forecast, the ‘Greenback’ may rally. However, if either survey misses forecasts, economic slowdown concerns may undermine USD.
Data for the week ahead
Monday
18.45 GBP Bank of England's Governor Bailey Speech
23.00 AUD Reserve Bank of Australia Governor Bullock Speech
Tuesday
00.30 Reserve Bank of Australia Meeting Minutes
13.30 CAD Bank of Canada Consumer Price Index
19.00 USD FOMC Minutes
Wednesday
08.35 AUD Reserve Bank of Australia Governor Bullock Speech
09.30 GBP Bank of England Monetary Policy Report Hearings
16.30 CAD Bank of Canada's Governor Macklem Speech
Thursday
08.30 EUR German Composite PMI
08.30 EUR German Manufacturing PMI
08.30 EUR German Services PMI
09.00 EUR HCOB Composite PMI
09.00 EUR HCOB Manufacturing PMI
09.00 EUR HCOB 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
21.45 NZD Retail Sales
Friday
14.45 USD S&P Global Composite PMI
14.45 USD S&P Global Manufacturing PMI
14.45 USD S&P Global Services PMI
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