GB Pound
↓ Sterling benefited from the weakness in the USD towards the end of the week.
What to watch for in the short-term?
↓ The Bank of England meeting didn’t add much to the overarching narrative within UK economic circles that the economy is due a recession in 2024. The Monetary Policy Committee downgraded growth expectation for the UK economy and essentially signalled a stagnation period until 2025.
The rate setting committee also made it clear that while the next move in rates is likely to be lower, it will not be for a number of quarters. We think this to be optimistic and subsequently note the chances that the Bank of England base rate is cut next Summer are too low at the moment. An increase in those would drag sterling lower.
What about the coming months? ↓ PMIs – surveys of optimism from services, manufacturing and construction sectors – will be the first canaries in the coalmine for the UK economy with this morning’s construction release showing continued pessimism.
Calendar
Friday 07.00 GMT | UK GDP
US Dollar
What happened last week? ↓ The uptrend may not be over but it is certainly taking a pause. What to watch for in the short-term? ↓ A phrase in markets that fits with the USD at the moment is “the trend is your friend”; if the trend that an asset’s price is increasing then you should bet that the trend will continue. That version of the phrase neglects the final part of the sentence which elongates it to “the trend is your friend, apart from the bend at the end”. I’m not sure whether the knowledge that the Fed is starting to see slowing in the US economy courtesy of higher rates is that band yet, and we will need to see a further deterioration in core US data to call this dollar uptrend fully over. What about the coming months? ↑ As we hinted at last week, data dependence is crucial for central bankers but the dollar will move higher if growth differentials are shown to be widening in the US’s favour into 2024. Calendar Wednesday 14.15 GMT | Fed Chair Powell Speech
Euro
What happened last week?
↓ The rise in EURUSD is once again an almost exclusively USD move.
What to watch for in the short-term?
↑ The euro is not in a position to generate the move seen in EURUSD last week, the calendar is quiet and any conversations by the ECB around higher rates will be discounted by traders almost immediately.
Similarly, spreads in sovereign debt between the Eurozone and US favours another run higher in the USD in the coming weeks. I would be wary of hanging my hat on these USD losses.
What about the coming months? ↑ With the weather comprehensively turning for the colder in Europe, energy prices will once again become a discussion point for investors despite the conflict in Ukraine falling off the front pages.
Calendar
Tuesday 10:00 GMT | Eurozone PPI
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