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The pound advanced against the euro and the US dollar last week.
GBP/EUR climbed to its highest level in over two months last week, as sterling made gains following cooling inflation data out of the eurozone. GBP/USD began this week around 0.45% up from where it began last week after a topsy-turvy time for the US dollar.
It certainly was an interesting week for the euro. Inflation data from each of the block’s major economies came in much lower than expected, a welcome dose of good news amid the storm clouds that have gathered.
The eurozone’s inflation rate fell to 2.4% – a considerably bigger drop than was expected, with core inflation also falling to 3.6%. Even better for the European Central Bank (ECB), this has been achieved without unemployment rising. At 6.5% European unemployment remains at or close to a decades-long low indicating that the ECB may have achieved a soft landing for the eurozone economy.
Markets are now beginning to bet that the ECB may join the Federal Reserve in loosening fiscal policy sooner rather than later. That’s in stark contrast to the Bank of England (BoE), whose policymakers made a number of high-profile media appearances last week beating the drum for policy discipline.
Last week’s autumn statement gave the UK plenty to think about. Chancellor Jeremy Hunt unveiled large tax breaks, although its impact on currency markets was dwarfed by those European inflation reads.
Here’s what to look out for this week….
There isn’t much for markets to since their teeth into today, but things pick up quickly on Tuesday with the ISM services PMI and JOLTs job openings from the US.
Wednesday will see BoE governor Andrew Bailey give comments, and we’ll get some manufacturing data from the UK and Europe.
After that, the Eurozone’s third GDP release will be closely watched, with markets predicting an uptick in growth in Q3.
The week ends with a bang as unemployment numbers and the ever-crucial non-farm payrolls arrive from the US.
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GBP: Calm before the storm
GBP/EUR advanced by over 1.2% last week and made smaller gains on the US dollar, as markets became more strident in their view that the BoE would be last to loosen policy.
It’s another relatively light week for UK data. That may just be the calm before the storm, as next week is set to feature GDP and unemployment reads. We’ll get some interesting reads this week, but next week is the crucial one for the UK economy heading into 2024.
GBP/USD: the past year
EUR: Inflation fuels rates optimism
The euro was beaten back by both the US dollar and the pound in last week’s session.
Behind its slide were a series of rapidly cooling inflation reads from the eurozone’s major economies. As inflation fell in France, Italy, Germany, and other countries, markets began to believe that the ECB could reach for the loosening lever faster than expected
USD: Consumer sentiment closely followed
USD/GBP shed some value last week, although the US dollar opened today over half a percent up on the euro.
With holiday season in full swing, there will be a focus on consumer sentiment this week with the release of the Michigan survey.
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