Pound yet to recover from last week’s losses

The pound has yet to recover from last Thursday’s losses against the euro and US dollar following the interest rate decisions from the Bank of England (BoE) and European Central Bank (ECB). The ECB under Christine Lagarde is taking an exceptionally hawkish view on interest rates, while BoE rate-setters look to be toning down the anti-inflation stance in the light of more positive data on inflation in November.

Judging by Friday’s data from UK high streets – a fall in sales amid declining consumer confidence – the recent rate hikes seem to be having an effect already.

This week we will see more industrial action in the UK, with planned strikes from ambulance drivers, nurses, driving examiners and highway workers. Nurses in about a quarter of hospitals across England, Wales and Northern Ireland are walking out tomorrow in dispute of a pay rise above the RPI inflation rate, which is currently over 14%.

Over the weekend, prime minister Rishi Sunak revealed he plans to scrap the energy taskforce that Liz Truss set up just a few months ago. A government official said, “While it was sensible in September for the previous administration to explore these contracts, locking in long-term contracts while gas prices are this high just doesn’t make sense.”

Toward the end of the trading day on Friday, Wall Street stocks struggled to make headway. The fears are that Federal Reserve interest rate hikes are leading the world’s most influential economy into a recession.

Today is a rather quiet day on the data front with the only major release being Germany’s business climate.

In the US, the week ahead includes the PCE price index, personal income and spending, DC and consumer sentiment.

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GBP: pound feeling the result of last week

The end of last week saw sterling fall significantly – almost 2% – against the euro and dollar. This was due to a relatively dovish approach from the Bank of England on interest rates compared to other central banks. The fall was despite several important data releases last week being better than expected, including inflation and GDP, although retail sales were shown on Friday to be unexpectedly low.

After a hectic week for data last week, the run up to Christmas is relatively light on data. However, today there will be CBI Industrial Trends and on Thursday a final recording for the GDP for the quarter, which could hold a pre-Christmas sting in the tale for sterling.

GBP/USD: the past year

EUR: euro starts the week on steady ground

Following the European Central Bank’s decision to raise interest rates to 2.5% from 2% last week, alongside relatively hawkish comments from ECB president Christine Lagarde, the euro saw a significant boost against the pound on Thursday, which continued into Friday. This morning it has remained steady so far against the pound while starting to climb in early trading against the US dollar.

As Lagarde reiterated, the ECB policy remains to return inflation to 2%, which will require further aggressive interest rate hikes into 2023.

Potentially influential data this week includes Ifo Business Climate for Germany, very shortly, and GfK Consumer Confidence, also for Germany, on Wednesday. As Europe’s largest economy, Germany’s economy is closely watched by the markets and its data has an outsized effect on the euro.

USD: Up on last week’s pound

The US dollar made a marginal recovery on Friday against the pound following interest rate decisions from the Bank of England.

This week there are a significant amount of data releases in the US, starting with the NAHB housing market index this afternoon which is forecast to fall from 33 to 32 in December, reflecting a fall in the traffic of prospective home buyers.

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