23/10 The week ahead for GBP, EUR and USD

The Pound faced a negative impact last week due to the ongoing conflict between Gaza and Israel. The escalating geopolitical tensions led investors towards safe-haven assets, diverting support away from the relatively risk-on Pound.

At the beginning of the week, the British Pound successfully avoided losses and even strengthened against some of its counterparts due to market optimism and expectations of a robust UK employment report. However, as Tuesday unfolded, the Pound dipped when average earnings for August dropped more than anticipated, signaling slackness in the labor market.

In the middle of the week, all eyes were on the UK's inflation data, which exceeded expectations, remaining steady at 6.7%. This development renewed hopes that the Bank of England might adopt a more hawkish stance in its upcoming monetary policy meeting.

Although economists speculated that the data alone might not prompt an immediate interest rate hike, the Pound still experienced positive momentum as concerns about a dovish shift were alleviated.

On Thursday, GBP/EUR resumed its previous downtrend, driven by geopolitical factors due to the absence of significant UK data. Sterling's trading was influenced by ongoing conflict despite international efforts, with reports of civilian casualties escalating.

However, on Friday, the Pound made another attempt to rebound. UK retail data came in below expectations, indicating a 0.9% decline in sales for September due to consumer spending limitations caused by cost-of-living pressures. Despite this, the currency managed to recover from recent lows.

UK employment data is expected to drive movement early in the week. If the economy lost jobs in July for a second consecutive month, concerns among investors about economic resilience in the midst of ongoing inflation are likely to intensify.

Across the bloc and the UK, PMI data is anticipated to be unimpressive, indicating a lack of growth and underscoring the impact of high inflation coupled with geopolitical challenges.

EUR

Last Friday, the Euro reached its highest point in five months, touching levels unseen since May 15. The currency's upward trend can be attributed to risk-off flows, along with hawkish European Central Bank statements and the weakness of the US Dollar.

On Monday, EUR/GBP remained subdued in relatively calm trading conditions. Investors were somewhat disappointed by a Eurozone trade balance that fell below expectations. The bloc's trade surplus failed to increase from €6.5 billion to €12.5 billion, instead showing a modest rise of €0.2 billion.

However, on Tuesday, the Euro surged as economic sentiment in the Eurozone's largest economy exceeded expectations. Germany's ZEW economic sentiment index for October came in at -1.1, a significant improvement from the previous month's -11.4.

By midweek, finalized inflation data met expectations. However, the Euro gained momentum as speculations of a hawkish stance from the European Central Bank (ECB) grew. Analysts scrutinized comments from ECB President Christine Lagarde for insights into the central bank's rate hike plans. Lagarde adopted a relatively hawkish tone, pledging to uphold tight monetary policy conditions to curb inflation

EUR/GBP continued its upward trend until Thursday and into Friday, but later dipped as the Pound regained strength. USD Dollar weakness on Thursday, ahead of a speech from Federal Reserve Chairman Powell, buoyed EUR along with risk-off sentiment.

Towards the end of the week, German Producer Price Index (PPI) data fell short of forecasts, potentially reducing expectations of a hawkish stance from the European Central Bank (ECB). German data has displayed inconsistencies in recent weeks, tempering Eurozone growth projections.

The key event for the Euro this week is the European Central Bank's interest rate decision on Thursday. While no rate hike is anticipated, investors are watching closely for a potentially hawkish tone in the accompanying press conference. Euro investors will be keen to glean insights into the bank's outlook and monetary policy direction.

In other developments, a slight improvement in Germany's business climate might provide the Euro with a modest uplift against the Pound and other currencies.

USD

The US Dollar (USD) experienced fluctuations throughout the week due to diverse US data and conflicting statements from Federal Reserve policymakers, injecting volatility into USD exchange rates.

The US retail data for September released on Tuesday surpassed expectations, showing a growth of 0.7%, only a slight decrease from August's 0.8%. The persistent consumer spending highlighted the resilience of the US economy, easing worries about a weakening retail sector. This development marginally increased the likelihood of a Fed interest rate hike, capturing investor attention towards the safe-haven Greenback.

Simultaneously, a series of speeches from Fed policymakers curbed the gains of the USD. Many policymakers adopted a notably vague tone, warning against letting recent positive data readings unduly influence their overall decision in the November meeting.

Elsewhere, the US Dollar remained under the sway of market risk appetite, as concerns over the situation in the Middle East played a role in curbing losses for the safe-haven currency.

The US PMI figures are scheduled for Tuesday, and a slight decline in services and manufacturing sector growth could indicate a minor slowdown in business activity across the US. This potential slowdown might dampen expectations for rate hikes.

Nevertheless, the US GDP is anticipated to increase in the third quarter of this year, with data scheduled for release on Thursday expected to reveal a growth of 4.1% in the US economy for the three months leading up to September.

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Data for the week ahead

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Monday

22.00 AUD S&P Global Composite

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Tuesday

06.00 GBP Claimant Count Change

06.00 GBP Employment Change

07.30 EUR German HCOB Composite PMI

07.30 EUR German HCOB Manufacturing PMI

07.30 EUR German HCOB Services PMI

08.00 EUR ECB Bank Lending Survey

08.00 EUR HCOB Composite PMI

08.00 EUR HCOB Manufacturing PMI

08.00 EUR HCOB Services PMI

08.00 AUD RBA Governor Bullock Speech

08.30 GBP S&P Global/CIPS Composite PMI

08.30 GBP S&P Global/CIPS Manufacturing PMI

08.30 GBP S&P Global/CIPS Services PMI

12.30 EUR ECB's President Lagarde Speech

13.45 USD S&P Global Manufacturing PMI

13.45 USD S&P Global Services PMI

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Wednesday

00.30 AUD Consumer Price Index

00.30 AUD Trimmed Mean CPI

14.00 CAD BoC Interest Rate Decision

14.00 CAD BoC Monetary Policy Statement

15.00 CAD BoC Press Conference

17.00 EUR ECB's President Lagarde Speech

20.35 USD Fed's Chair Powell Speech

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Thursday

12.15 EUR ECB Monetary Policy Statement

12.15 EUR ECB Rate on Deposit Facility

12.30 USD Gross Domestic Product Annualised

12.45 EUR ECB Press Conference

23.30 JPY Tokyo Consumer Price Index

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Friday

12.30 USD Core Personal Consumption Expenditures

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