Monthly Outlook
GB Pound
What happened last week? ↑ The pound is thriving being off the front pages although we must remember that a lot of its ‘strength’ is USD weakness. UK fundamentals remain poor. What to watch for in the short-term? ↓The pound is unlikely to make headlines before the end of the year with next week’s Bank of England the only exception. As in the US and Europe, a 50bps increase in the base rate is forecast, and the accompanying minutes will likely emphasise that further rises are on the way.
EURGBP could deteriorate towards 0.84 by the end of the year. What about the coming months? ↓ A combination of Conservative MP resignations, corporate bankruptcies and cost-of-living pressures are increasing pressure on the Sunak administration at an interesting time. Further inflation pressures are also likely in the New Year from European energy markets. Calendar Tuesday 00.01 GMT | BRC Retail Sales
US Dollar
What happened last week? ↓ We saw further declines from the USD last week with a strong payrolls report unable to stem the bleeding. The USD hit over 5-month lows against the euro and pound and is down over 8% since the early part of November What to watch for in the short-term? ↓With the weakness of the wider dollar, USDCNY is currently trading below 7.00 for the first time since September. While it’s not as much of a line in the sand as it has been in the past, we have concerns as to how much more good Covid news can be priced into markets, particularly from a Chinese point of view, thereby limiting USD weakness. Likewise, while the US jobs numbers couldn’t help the greenback on Friday, we have doubts over the dovish narrative that some in markets are placing a lot of hope in. Pushback from the Fed at next week’s meeting would lead to a reversal higher for the USD. This week’s data calendar is light. What about the coming months? ↑ The dollar is not as overly strong as it has been which limits positioning pressures for now. Yields however should remain supportive given the wider environment Calendar Monday 15:00 GMT | ISM Services PMI Friday 15.00 GMT | Michigan Consumer Sentiment
Euro
What happened last week? ↑ EUR had a quiet week with EURUSD drifting higher and EURGBP remaining rangebound. What to watch for in the short-term? ↓We’re going to be talking a lot more about atmospheric temperature in the coming weeks as Europe attempts to negotiate winter energy markets. EURUSD’s correlation with energy prices and European terms of trade suggest that a tighter market for oil and gas will make for a tougher outlook for the single currency well beyond this winter. What about the coming months? ↓ Next week’s ECB meeting will set out an interesting stall for the central bank given the most recent soft inflation reading; an expected 50bps rise next Thursday could and should be the ECB’s last. Calendar Wednesday 10.00 GMT | Q3 GDP
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