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Three key interest rate decisions are on this week's festive menu
GBP/EUR held onto its hard-earned gains last week, finishing Friday about level with the week prior. The pound is now up by around a cent and a half from the end of September after a streak of strong outings. Both currencies slid by nearly 1% against the US dollar, which ended the week having pared back some of its losses from the last month.
Last week’s US non-farm payrolls crept up to 199k, well above the predicted 180k. With forecasters already having undercooked their JOLTs job openings predictions, the US dollar marched higher as the possibility of the Federal Reserve delivering cuts as soon as March started to look a little more remote.
Meanwhile, American stock indexes were propelled higher by the Michigan economic survey. It wasn’t all rosey for US markets, but consumers reported less concern about inflationary pressures – no doubt a small but potentially significant ray of light for Joe Biden heading into a federal election year.
The US dollar’s gains looked circumspect against those of the Japanese Yen, which raced higher to finish the week around 1.5% up on the dollar. The Yen performed well after markets bet that the Bank of Japan would raise interest rates, just as the decibels were picking up in the West about the potential for cuts.
There were a few crumbs of interesting data elsewhere, but the real big week of data has now arrived. Will policymakers be getting coal or coins in their stockings? We’ll soon find out with the Bank of England (BoE), the Federal Reserve and the European Central Bank (ECB) due to unveil their latest interest rate decisions.
We will also have inflation and unemployment data to unpack, as well as big reads coming out of China. It’s sure to be a vital period.
Here’s what to look out for this week…
Today is very much the calm proceeding the storm, before Tuesday brings UK unemployment figures, the German ZEW Economic Survey, as well as US inflation, both headline and core.
On Wednesday we’ll get UK GDP statistics and US PPI, before markets settle in to watch the Fed’s interest rate decision. Jerome Powell and his fellow central bankers will then offer a light digestif in the form of their always closely-watched press conference.
Andrew Bailey and his Bank of England colleagues then take centre stage on Thursday for their own rate announcement, swiftly followed by Christine Lagarde and co at the ECB.
The week ends somewhat quieter, but there will be overnight attention on Chinese industrial production and retail sales.
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GBP: Hawks fly high
GBP/EUR was little changed last week, as sterling clung to its gains while falling modestly against the US dollar.
There isn’t much debate that the BoE will leave rates unchanged this week. The main point of difference may be how many of its bankers vote for a further increase: three out of the nine MPC members are currently expected to vote for another hike, a sign that there may not be much Christmas spirit in the committee rooms.
GBP/USD: the past year
EUR: Inflation progress
EUR/GBP traded mostly flat last week, while the euro lost some value against a resurgent US dollar.
The eurozone has made good progress in is fight against inflation. Will recent figures from Germany, France, Spain and others prove enough to lower rates on Thursday? That seems unlikely, although there is a sense that cooling inflation may allow the ECB to cut sooner and more aggressively than had been expected.
USD: Hold, but for how long?
The US dollar climbed by nearly 1% against its major rivals last week, propelled by resilient economic performance and ongoing geopolitical risk.
Data coming out of the US last week did serve to dampen expectations of imminent rate cuts from the Fed. The JOLTs job openings and non-farm payrolls came it hotter than expected, as traders started to pull back on bets that interest rates could be cut as early as March.
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