30/10 The week ahead for GBP, EUR and USD

The Pound was put under big pressure throughout last week as disappointing data releases riddled GBP's economic calendar.

The publication of preliminary PMIs on Tuesday negatively impacted GBP, revealing that business activity in the UK had contracted for a third consecutive month.

In October, both the services and manufacturing PMI surveys indicated a lack of progress, with both sectors remaining in contraction territory. This fueled persistent fears of a UK recession and consequently reduced investor interest in Sterling.

On Tuesday, the UK's unemployment rate for the months of June through to August was also released. At 4.2%, the unemployment rate showed a 0.2% increase from the UK's previous reading. This gradual rise in unemployment underscored recent worries about a weakening UK labor market.

The Confederation of British Industry's distributive trades data for October plunged to -36 on Thursday, a significant drop from the previous month's reading of -14.

Persisting cost-of-living anxieties and soaring inflation rates have hampered consumer spending in the UK. The deteriorating state of the retail sector has further diminished hopes for additional interest rate hikes from the Bank of England.

Adding to the pressure on the Pound was a revision indicating a rise in September's unemployment rate. Although it marked a decrease from August's figures, the slowed pace of hiring highlighted the constraining impact of the stringent monetary policy on the economy.

As the week came to an end, sentiment toward Sterling remained negative, with investors expecting the Bank of England to maintain the current interest rates.

On Thursday, the Bank of England is set to announce its rate decision, which is anticipated to remain unchanged at 5.25%. A gloomy economic forecast has dampened expectations of a rate hike in recent weeks. Many investors are anticipating that the central bank will maintain the current interest rates in this week's monetary policy meeting. If this prediction holds true, the GBP might find it challenging to attract investor interest.

EUR

The focal point for Euro traders in the past week was the European Central Bank's interest rate decision and the accompanying monetary policy statement released on Thursday.

Prior to this event, the movement of the EUR was influenced by factors such as PMI data, which was unfavorable. Although Germany's manufacturing flash data exceeded forecasts on Tuesday, performance indicators for both Germany and the broader Eurozone fell significantly below the threshold separating contraction from expansion. As a result, EUR/GBP experienced a sharp decline.

Midweek, a business climate indicator printed higher than expected, indicating that companies had become less pessimistic about the upcoming months. Consequently, the Euro continued to rise overnight and into Thursday. However, it later lost ground against the GBP after the European Central Bank decided to maintain interest rates at their current levels.

At first glance, the European Central Bank's decision and the accompanying statements appeared pessimistic. The bank's President acknowledged the weakness in the bloc's economy and indicated that it is likely to remain subdued for the remainder of the year. As a result, the Euro managed to regain some of its earlier losses against the Pound, leading to a period of sideways trading throughout Friday's session due to the absence of significant domestic data.

Thursday will witness Germany's latest GDP release, European economic sentiment, and inflation data. Simultaneously, crucial US data might impact the Euro due to the strong negative correlation between the two currencies.

The European Union could face pressure on Wednesday evening if the Federal Reserve adopts a hawkish tone during its interest rate decision.

USD

The US Dollar experienced fluctuations last week as investors responded to fresh data.

The USD initially encountered pressure as markets scaled back their expectations for another Federal Reserve interest rate hike.

On Tuesday, October's preliminary PMIs were released in the US. Both manufacturing and services sectors showed strength, surpassing expectations. This bolstered the US Dollar.

Thursday's GDP data revealed a robust third quarter for US economic growth, surging from 2.1% in the second quarter to the current 4.9%. Positive GDP and PMI data confirmed a robust US economy. However, significant increases in US economic activity generated a risk-on sentiment, limiting the potential gains for the USD amid improving risk appetite.

On Friday, the Fed's preferred measure of inflation was released. The year-on-year core PCE price index for September came in as expected at 3.7%, a slight decrease from the previous month's reading. Following this, the US Dollar remained relatively stable and traded within a narrow range for the rest of the session.

In the upcoming week, the USD exchange rate is likely to be influenced significantly by the impending interest rate decisions from the Federal Reserve.

This Wednesday, the Federal Reserve is set to announce its much-awaited interest rate decision. Market expectations suggest that interest rates will stay at 5.5% in the US, with a potential decision to hold rates possibly weakening the US Dollar. Yet, recent strong economic performances in the US have hinted that the Fed might have room to consider rate hikes. A hawkish stance during the hold could potentially strengthen the USD.

The ISM manufacturing PMI is scheduled for release on Wednesday. If there's a projected ongoing decline in American factory activity, the USD might face setbacks. Later in the week, on Friday, the ISM services PMI will be published. If it indicates another strong performance, the Greenback might attract buying interest.

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Data for the week ahead:

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Monday

00.30 AUD Retail Sales

09.00 EUR German Gross Domestic Product

13.00 EUR German Consumer Price Index

13.00 EUR German Harmonized Index of Consumer Prices

19.30 CAD Bank of Canada's Governor Macklem Speech

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Tuesday

01.00 CNY NBS Manufacturing PMI

01.00 CNY NBS Non-Manufacturing PMI

03.00 JPY Bank of Japan Interest Rate Decision

03.00 JPY Bank of Japan Monetary Policy Statement

03.00 JPY Bank of Japan Press Conference

07.00 EUR German Retail Sales

10.00 EUR Core Harmonized Index of Consumer Prices

10.00 EUR Gross Domestic Product

21.45 NZD Employment Change

22.00 NZD Reserve Bank of New Zealand's Governor Orr Speech

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Wednesday

01.45 CNY Caixin Manufacturing PMI

12.15 USD ADP Employment Change

12.40 CHF SNB's Chairman Jordan Speech

14.00 USD ISM Manufacturing PMI

18.00 USD Fed Interest Rate Decision

18.00 USD Fed Monetary Policy Statement

18.30 USD FOMC Press Conference

20.15 CAD Bank of Canada's Governor Macklem Speech

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Thursday

00.30 AUD Trade Balance

07.30 CHF Consumer Price Index

12.00 GBP Bank of England Interest Rate Decision

12.00 GBP Bank of England Monetary Policy Report

12.30 GBP Bank of England's Governor Bailey Speech

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Friday

01.45 CNY Caixin Services

12.30 USD Average Hourly Earnings

12.30 USD Nonfarm Payrolls

12.30 CAD Net Change in Employment

12.30 CAD Unemployment Rate

14.00 USD ISM Services PMI

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