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Sterling strengthened against its key rivals during Wednesday's session.
GBP/USD climbed by over a cent on Friday, and while the pound gained by a much smaller amount against the euro – around two-tenths of a per cent – it nonetheless capped off a positive week for sterling.
Friday saw a sharp US dollar selloff after new evidence of resiliency in the American market. The US economy added 216k new jobs in December, far higher than November’s total of 173k and beating forecasts of around 170k.
That data was tempered by an underwhelming ISM Services PMI. That read fell to 50.6 from last month’s 52.7, indicating contraction within the services sector.
EUR/USD briefly rose by half a cent before moderating to largely unchanged levels. That came after inflation in the eurozone increased to 2.9% in December from the previous 2.4%, a number that reflected the majority of expert forecasts.
The RMT trade union has called off a planned strike on the London Underground this week that threatened to put another dampener on economic activity. Major disruption had been expected on the UK capital’s transport network, as drivers and signal workers continue their long-running dispute over working conditions.
The UK labour report for December found there was a softer decline in recruitment activity and the rate of pay growth picked up from lows seen in November.
Israel and Hezbollah traded barbs to end the week, as fears grew that the paramilitary group could lash out in response to recent events.
This morning, economists heard that Germany’s trade surplus widened to €20.4 billion in November 2023, surpassing market expectations of €17.9 bn and up from €17.7 bn in November. This marks the largest trade surplus since January 2021 as exports grew more than imports.
Do be sure to keep an eye out for our Quarterly Forecast, which breaks down a huge year for global currency markets.
Here’s what to look out for this week…
The week begins with eurozone retail sales and a speech from the Federal Reserve’s typically hawkish Raphael Bostic.
Eurozone unemployment then follows on Tuesday before an unusually sparse mid-week lull.
The pace then picks up on Thursday with US core and headline inflation, along with initial jobless claims.
UK GDP will be the focus on Friday morning before attention shifts to a handful of European inflation reads and US PPI for December.
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GBP: House prices climb
Sterling ended the week up almost a cent up on the US dollar and less than a quarter of a per cent up against the euro.
UK house prices rose for the third consecutive month, according to the Halifax price index, and are now at their highest level since March 2023. The increase was driven largely by supply shortages, analysts said, although there are doubts as to how long prices can remain this high.
GBP/USD: the past year
EUR: Inflation returns
The euro had a quiet end of the week, treading water against the US dollar and falling modestly against the pound.
Eurozone inflation picked up last week, a worrying reversal to its trend that analysts have long warned could happen. The spotlight will remain on inflation in the months ahead should the European Central Bank be interested in tinkering with interest rates.
USD: Labour market going strong
The US dollar lost some ground to the pound in Friday’s session while chasing back a brief euro rally.
Undeterred by the dark clouds in other economies, the US labour market keeps adding jobs. 213K were added in December, representing remarkable strength considering elevated interest rates and a gloomy macro picture.
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