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Foreign Exchange Analysis ~ 12 September 2023


GB Pound

Some dovish rhetoric in markets and from the BOE was enough to weaken the pound last week.


What to watch for in the short-term?

The wheels haven’t come off sterling but there are some wobbles taking place that have brough the pound lower.


Both September and future rate hike expectations have decreased markedly from their peaks and while we do expect rates to rise on Threadneedle St next week, data dependency makes the calendar of economic releases even more important.


This week’s wage and jobs numbers are unlikely to be enough to stop a hike on their own but weakness there and next Wednesday’s inflation numbers easily could do.


What about the coming months? Higher for longer as opposed to a high peak in rates looks to be the plan both in the US and UK from their respective central banks. GBP may underperform the euro in such a scenario.


Calendar

Tuesday 07.00 BST | UK Unemployment

Tuesday 07.00 BST | UK Wage Growth


US Dollar

What happened last week? News from both Japan and China weakened the US dollar. What to watch for in the short-term? Conversations far from the US have finally been the reason for a pullback in USD performance with both Japanese and Chinese central banks using policy threats to jawbone their currencies higher. These moves may not last too long and could be enough to flush weak USD longs out of the positioning conversation. This week’s inflation reading would need to be super strong to change the minds of policymakers away from a hold on interest rates next week. What about the coming months? We’re not willing to say the recent move lower by the USD has shown where the top for the dollar is yet. There is definitely the chance of further cross dollar strengthening heading into Q4. Calendar Wednesday 13.00 | US CPI


Euro

What happened last week? Euro risk is back as growth continues to fall apart. What to watch for in the short-term? It’s ECB week in Europe and for ratesetters in Frankfurt it may be a case of now or never for one last hike of interest rates. The economic backdrop in Europe has worsened notably in the past few weeks and alongside expected pauses in cycles in both the States and the UK it makes little sense for the ECB to be doing much monetary tightening on its own. In the very short term EURUSD is being helped by a weak dollar for reasons outlined below but those days may be numbered. What about the coming months? Lower growth and poorer carry make the euro a poor comparison to the greenback and we are more likely to see 1.05 than 1.10 in the short term. Calendar

Thursday 12.00 BST | European Central Bank meeting




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