The week ahead for GBP, EUR and USD
Last week, the British Pound exhibited a fluctuating performance against the Euro, initially rising sporadically but later plummeting as market sentiment turned negative. The escalating tensions in the Middle East took the spotlight, sparking concerns about broader geopolitical consequences and potential disruptions in global trade. Simultaneously, the Pound experienced volatility in its exchange rate with the US Dollar due to varying data and shifting market sentiment. Towards the end of Friday's trading session, the Pound-to-Dollar pairing reached its lowest point of the week.
At the beginning of last week GBP made tentative gains – risk sentiment remained strong despite building tensions in the Middle East.
The British Retail Consortium’s retail sales monitor for September lent some support to the Pound on Tuesday; yet sales growth was down on last month’s reading. Against the Euro, GBP faced headwinds as risk appetite wavered.
Downbeat economic projections further capped Pound gains: the International Monetary Fund (IMF) highlighted falling growth momentum, a labour market that is cooling, and persistent inflationary pressures.
Midweek, Sterling hit a 3-week high against the single currency; yet subsequently fell. Initially buoying the currency were hawkish comments from the BoE - markets digested remarks from policymaker Catherine Mann, who suggested policy has to be more aggressive to address a drift in expectation as well as inflation.
Towards the week's end, concerns about an economic slowdown restrained the Pound's gains. Investors were focused on the disappointing industrial production data released on Thursday, indicating reduced spending by UK companies due to a bleak demand outlook. Additionally, cautious remarks from the Bank of England's Swati Dhingra raised worries about a potential early interest rate cut, further impacting market sentiment.
The UK economy found a brief respite with a 0.6% contraction in August. However, this moment of optimism was short-lived, as the growth figures proved insufficient to alleviate ongoing economic concerns in the country.
Concerns about an imminent recession in the UK were reinforced earlier in the week when a warning surfaced stating that the country is projected to have the slowest economic growth among G7 nations next year.
A busy upcoming week in the UK could influence the Pound Euro exchange rate, with geopolitical tensions and associated risk sentiment also playing a crucial role.
Unemployment levels in the UK are anticipated to have held steady in August, matching the figures from July. However, the forecast suggests a potential drop of 195,000 jobs in the later month, which might impact Pound confidence negatively.
Towards the end of the week, inflation data in the UK is expected to show a decrease in domestic price pressures. This outcome could support the more cautious stance among some Bank of England policymakers. Despite this, as long as inflation remains elevated, concerns about economic growth are likely to persist.
EUR
The Euro strengthened against the Pound and other risk-off currencies last week but faced a sharp decline against the US Dollar (USD) due to increased risk aversion following the latest US inflation data.
At the beginning of the week, the Euro showed little reaction to the release of October's European Sentix Investor Confidence reading, despite the result being better than expected. The reading came in at -21.9, surpassing the anticipated -24.
On Tuesday, the Euro received support from risk-off market conditions and a weakening US Dollar. However, the USD regained strength midweek, putting pressure on the Euro. Potential losses were limited as the European Central Bank (ECB) released a consumer expectations survey indicating a slight increase in inflation expectations in August. This led to optimistic speculation about the central bank's monetary policy direction.
Thursday saw a sudden shift in risk sentiment after higher-than-expected inflation was realized in the USA, boosting the Euro against the Pound. Coupled with escalating concerns about the Israel-Gaza conflict, apprehensions regarding a hawkish stance from the Federal Reserve turned market sentiment bearish.
As the week drew to a close, the Euro received a boost from August's industrial production data, which showed a return to growth territory. Additionally, Euro confidence remained high due to the ECB's latest meeting minutes, which struck a more hawkish tone than initially anticipated.
Germany's ZEW economic sentiment index is anticipated to reflect improved morale in October. The forecast suggests a reading of -9 for the month, an improvement from the previous month's -11.4. This positive outcome could potentially boost the Euro's momentum.
USD
The US Dollar (USD) experienced fluctuations at the start of last week but ultimately strengthened against the Pound (GBP) and most other currencies following the release of the latest US Consumer Price Index (CPI) data.
Uncertainty prevailed among USD investors due to a series of speeches by Federal Reserve policymakers, leaving them unsure about the Fed's potential decision regarding the next rate hike in November.
Early in the week, a speech by Fed policymaker Lorie Logan, traditionally known for her hawkish stance on monetary policy, suggested that the recent surge in US Treasury bonds might reduce the necessity for the Fed to continue tightening its monetary policy.
September's Consumer Price Index (CPI) data stood at a consistent 3.7%, slightly surpassing the anticipated 3.6%. These unexpectedly higher inflation figures led investors to favour the US Dollar, reviving expectations for an additional rate hike at the upcoming November meeting of the Federal Reserve.
The US Dollar continued to strengthen throughout the week due to a worsening market sentiment, which bolstered risk appetite among investors. This trend supported the Dollar's gains until the end of the week.
Retail sales data for September is set to be released on Friday. Anticipated to show a decline in sales growth compared to the previous month, this expectation could impact the 'Greenback' negatively on Tuesday.
Meanwhile, a series of speeches from Federal Reserve policymakers have the potential to influence USD movement. Any hawkish comments from the central bank officials could boost the US Dollar.
Data for the week ahead
Monday
21.45 NZD Consumer Price Index
Tuesday
00.30 AUD RBA Meeting Minutes
06.00 GBP Claimant Count Changes
06.00 GBP Employment Change
12.30 USD Retail Sales
12.30 CAD Consumer Price Index
Wednesday
02.00 CNY Gross Domestic Product
02.00 CNY Industrial Product
02.00 CNY Retail Sales
06.00 GBP Consumer Price Index
Thursday
00.30 AUD Employment Change
16.00 USD Fed's Chair Powell Speech
Friday
06.00 GBP Retail Sales
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