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Foreign Exchange Analysis ~ 23 October 2023


GB Pound

For the first time in a number of weeks, we’ve seen a little bit of sterling stability.


What to watch for in the short-term?

The pound has had a tough few weeks and while last week saw the beatings take a slight break, the data picture in the UK is unlikely to offer the pound too much support.


Both this week’s services PMI release and the delayed jobs data have the potential to further poison the well with anecdotal evidence suggesting that a lot of businesses are having to work very hard to stand still. Sterling has the possibility to make some gains against the euro however, given likely weakness in Eurozone data.


What about the coming months? The government’s shellacking in two by-elections last week has raised the question whether tax cuts will be seen at next month’s Autumn Statement. Fiscal looseness would be seen as a sterling positive; its impact at the polls may be less obvious.


Calendar

Tuesday 09.30 BST | UK Services PMI


US Dollar

What happened last week?

There’s not much out there to hurt the dollar at the moment, and the USD remained strong last week.


What to watch for in the short-term?

Global markets are risk averse at the moment. Whether that’s because of Israel/Palestine, Russia/Ukraine, uncertainty in central bank policy, oil prices, slowing global growth, fears over tech earnings, bond market losses it doesn’t really matter; there are a lot of reasons out there to buy, or at least, not sell the USD.


What about the coming months? the level of data dependence that the Federal Reserve has exhibited in the past few months has drawn some criticism with suggestions that further hikes are not needed despite strong inflation and growth. The key for all currencies heading into 2024 is does the Fed agree?


Calendar

Friday 13.30 BST | US PCE


Euro

What happened last week?

Moves in oil prices and regional growth are not helping the single currency.


What to watch for in the short-term?

For those of trading currency through the Global Financial Crisis the fact that the euro rallied late on Friday on the news that Moody’ hadn’t downgraded its outlook on Italian sovereign debt prompted a pang of nostalgia.


Alongside an ECB meeting this week, we are in an interesting place for the euro with more negative economic data likely and a possible pause in rates coming.


The single currency’s fightback against sterling may have to wait a little longer whilst against the dollar, the USD remains very much in charge.


What about the coming months? Positioning data suggests that traders are becoming less negative on the euro, possibly betting on a pause in rates in the US and a puncturing of the dollar dominance balloon. We need further convincing.


Calendar

Thursday 13.30 BST | ECB meeting




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