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Foreign Exchange Analysis ~ 16 October 2023


GB Pound

Sterling remained very much on the sidelines ahead of this week’s cycle of data.


What to watch for in the short-term?

Sometimes the FX market is a very simple creature and this stems from its ability to only focus on 2 to 3 three things at any one time. With everything going on in the Middle East alongside the belief that the Federal Reserve may be guiding markets towards a more dovish future, the pound really is struggling to get much of a look in.


That being said, with wage and inflation data coming through this week markets will be paying attention to whether the 60% probability of a further hike by the Bank of England is further priced out by a normalisation of the economic landscape.


What about the coming months? Sterling is not a currency to thrive in uncertain economic/geopolitical times and the longer issues remain in the Middle East and Ukraine, the more negative the outlook for the pound.


Calendar

Tuesday 07.00 BST | UK Wages and Unemployment


US Dollar

What happened last week?

The USD, alongside the Swiss Franc, has outperformed in the past week as investors look for safe haven.


What to watch for in the short-term?

Had the issues in the Middle East not emerged in the past week, there is a real chance that we would be talking about a USD that is set up for a fall.


However, unfortunately the terrible humanitarian crisis does exist and one of the results has been a stronger dollar with more to come should issues at Israel’s northern border further inflame the local situation.


What about the coming months? We do expect that the US economic situation will slow in the coming months but the USD remains attractive in a large number of scenarios, especially versus the USD and EUR.


Calendar

Tuesday 13.30 BST | Retail Sales


Euro

What happened last week?

Oil price moves are starting to pressurise the single currency’s performance.


What to watch for in the short-term?

The news from the Middle East suggests that the move higher in oil prices is here to stay but the peak will be lower than may have been seen last year.


Europe, alongside Asia, is a net importer of oil and terms of trade dynamics suggest that the higher prices will be a negative for both economies.


What about the coming months? The news over the weekend of a more centrist government being elected in Poland may lead to both a stronger PLN and EUR. Should reforms in country be seen as pro-Brussels then growth dynamics for both areas should improve.


Calendar

Wednesday 07.00 BST | German Inflation




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