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Foreign Exchange Analysis ~ 28 November 2023


GB Pound

What happened last week?

The pound had one of its better weeks, driving higher on lower risk aversion and the Hunt Statement.


What to watch for in the short-term?

Chancellor Hunt’s Autumn Statement wasn’t a particularly market moving piece of politicking but the news that £20bn will be put to work allowed those in markets to gain an element of optimism.


While the path upwards is not guaranteed, the news that markets are pricing in around half the size of rate cuts expected in Europe and the US offers hope that monetary policy will keep sterling supported.


What about the coming months? With politics on an election footing, the government will be hoping for rate cuts in the summer. The Bank of England’s communication skills will be tested again.


Calendar


Wednesday 15.05 GMT | BOE Governor Bailey speech


US Dollar

What happened last week?

The dollar sell-off continued through the Thanksgiving break.


What to watch for in the short-term?

Most people watching the US dollar are watching and waiting to see whether there is a snap back following the recent decline of the greenback. USD is down 3.5% in a little over a month but as noted above, the yield curve should keep additional losses in check.

This week’s Beige Book may not be enough to support the narrative of rate cuts in the latter half of next year and could preclude a dollar rebound.


What about the coming months? While we anticipate some dollar weakness in 2024 we are not as bearish as a number of our FX brethren. There remains a lot of risk that will see the dollar bought in size.


Calendar

Thursday 13.30 GMT | US PCE Inflation


Euro

What happened last week?

EURUSD almost bumped its head against the 1.10 level last week but has since retreated.


What to watch for in the short-term?

With the short end of US rates still pretty strong there is little incentive for this USD sell off to persist. That being said, there remains a number of news items out there that could offer support to the single currency.

We will be watching Germany’s constitutional court to see whether the government can overcome the court’s ruling around blocking additional spending.


What about the coming months? The story of sclerotic growth and weaker interest rate fundamentals leads us to think that the euro rally will not last into 2024.


Calendar

Thursday 10:00 GMT | Eurozone Inflation




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