Monthly Outlook
GB Pound
The announcement of the new prime minister managed to calm markets and support the Pound.
Movements
GBPUSD started the week at 1.1346 and after a quiet start it rallied on Tuesday and Wednesday’s sessions gaining 3.1% to touch a 6-week high of 1.164. In the latter half of the week Cable dropped half a percent on Thursday, then recovered in Friday’s session to close the week at 1.1560 for a weekly gain of 1.89%.
GBPEUR opened at 1.1514 dropping to a low of 1.1412 on Monday. For the remainder of the week, Sterling appreciated against the Euro advancing 0.7% on Tuesday and consolidating gains in the latter half of the week. The pair touched a multi-week high on Friday at 1.166 and finally closed the week at 1.1654 for a weekly gain of 1.22%.
Movement rationale
Last week started with the coronation of Rishi Sunak as the UK’s new Prime Minister as opposition candidates Boris Johnson and Penny Mordaunt bowed out of the leadership contest. Gaining support on the promise of fiscal stability, markets reacted positively to Sunak causing 10-year Gilts to fall from 4% on Friday to 3.8% on Monday morning. Consequently, Sterling rallied against majors, touching a 6-week high against the Dollar after a 3% appreciation during Tuesday and Wednesday’s sessions. Midweek Sunak announced the delay of the fiscal statement to Mid-November with reports that Hunt and the new PM are looking to hike taxes and cut spending to the tune of £50bn. With markets looking toward the interest rate announcement next week GBP price action softened in the latter half of the week. Cable consolidated in the 1.15s after shedding half a percent on Thursday. Similarly, GBPEUR spent Friday trading rangebound testing the 1.16 level.
Week ahead
At one point, markets had been pricing in a full 100bps increase in the Bank’s base rate this Thursday but following a number of U-turns and the appointment of Sunak as PM to the consensus now falls on a hike of 75bp.
Calendar
Tuesday 9.30am | Manufacturing PMI
Thursday 12pm | Interest rate announcement
US Dollar
Weakening US economic data during the first half of the week caused a depreciation of the Dollar against a basket of majors.
Movements
EURUSD opened the week at 0.9852 posting consecutive gains in the first half of last week to touch a high of 1.009 on Wednesday. On Thursday it lost 1.1% and spent the remainder of the week trading rangebound. The pair closed the week at 0.9919 for a weekly gain of 0.68%.
GBPUSD started the week at 1.1346 and after a quiet start it rallied on Tuesday and Wednesday’s sessions gaining 3.1% to touch a 6-week high of 1.164. In the latter half of the week Cable dropped half a percent on Thursday, then recovered in Friday’s session to close the week at 1.1560 for a weekly gain of 1.89%.
Movement rationale
For EURUSD, last week saw a shift in risk appetite which benefitted the single currency. EURUSD posted 5 consecutive days of gains, culminating on Wednesday when the pair touched 1.009 (a level not seen since mid-September). Similarly, the Dollar lost some ground against the Sterling due to weaker-than-expected PMI data (down to 47.3 from 49.5 the month before) and a drop in US consumer confidence which cooled expectations on the pace of future US rate hikes. Cable moved from 1.127 on Tuesday to a high of 1.164 on Wednesday. However, a shift in risk appetite on Thursday backed by strong US data caused the Greenback to regain some losses against majors. Preliminary Q3 GDP beat expectations (2.6% Vs 2.4%) and Durable goods increased from the month before (0.4% V 0.2% in August). EURUSD went into the weekend back below parity and GBPUSD oscillated around 1.155-1.16.
Week ahead
It will be a busy week for the Dollar with all eyes look toward the Feds accompanying statement on Thursday and unemployment data on Friday. Whilst the Fed is widely expected to raise rates by 75 basis points for a fourth-straight time, any notion of a Fed pivot for the December meeting could cause downward pressure to the currency.
Calendar
Tuesday 2pm| ISM Manufacturing PMI(Oct)
Wednesday 6pm | Interest rate announcement
Thursday 1.30pm | SM Services PMI(Oct)
Friday 12:30pm | Nonfarm Payrolls (Oct)
Euro
The Euro had a strong start to the week against the dollar but reversed the gains following the interest rate announcement.
Movements
EURUSD opened the week at 0.9852 posting consecutive gains in the first half of last week to touch a high of 1.009 on Wednesday. On Thursday it lost 1.14% and spent the remainder of the week trading rangebound. The pair closed the week at 0.9919 for a weekly gain of 0.68%.
GBPEUR opened at 1.1514 dropping to a low of 1.1412 on Monday. For the remainder of the week, Sterling appreciated against the Euro advancing 0.7% on Tuesday and consolidating gains in the latter half of the week. The pair touched a multi-week high on Friday at 1.166 and finally closed the week at 1.1654 for a weekly gain of 1.22%.
Movement rationale
As with many of its international counterparts, Eurozone PMI data failed to beat predictions on Monday (47.1 V 47.5 consensus). To add further downside pressure, the IFO Index dropped for the fifth consecutive month, signalling that Germany is heading into recession. Despite this the Euro made small advances on the Dollar and Pound in Monday’s session. EURUSD consolidated the gains made in the last half of the week before gaining a further 2% on Tuesday and Wednesday, with the pair breaking above the 100d MA to touch a high of 1.009. On Thursday the ECB made the second consecutive 75bp interest rate hike. Markets responded negatively to ECB’s comments emphasising a gloomy outlook for the eurozone economy, causing a drop in the Euro against major rivals. On Friday EURUSD and GBPUSD traded rangebound.
Week ahead
Next week’s busy economic calendar poses risk of volatility for the Euro. If growth, inflation, and unemployment are all weaker, expect markets to lower their interest rate forecasts for 2023.
Calendar
Monday 11am | GDP (Q3) Preliminary | HICP (Oct) preliminary
Thursday 11am | Unemployment Rate (Sep)
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