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The euro gained on its rival prior to Christmas
The pound ended the last week before Christmas about seven tenths of a per cent down against the euro and 0.4% up against the US dollar. The US dollar saw a mild sell-off, as markets were happy to reaffirm their bets that the Federal Reserve is on course for Q1 rate cuts. The past two days have seen some movement, with sterling rising gently against the dollar.
As people around the world tucked into their festive dinners, Bank of England (BoE) officials could be forgiven for losing their appetite given the scale of the task ahead of them. Last week’s GDP figures confirmed that the UK economy contracted by 0.1% in the third quarter, although consumer sales did see a 1.3% retail bounce. Jeremy Hunt indicated he would like to see an interest rate decrease before long, possibly putting him on a collision course with independent policymakers.
While consumer prices have been falling rapidly in the eurozone, the French Producer Price Index rose by 2.4% in November, well above predictions of 0.2%. While only a small piece of data, the news emphasised why the European Central Bank (ECB) is reluctant to signal rate cuts this soon.
US GDP also came in below expectations, albeit at much happier levels of 3.3% in Q3. Personal spending and income in the US market both grew by slightly more than expected in November, up to 0.2% and 0.4% respectively. Friday’s durable goods orders meanwhile surprised to the upside, climbing by 5.4% against by forecasts of 1.8%.
Some markets saw a more limited shutdown over recent coming days. Trading floors were open in Japan, for instance, where the yen lost around 0.5% against the US dollar last week, but remains almost 5% up compared to November.
Here’s what to look out for in this shortened week…
A few US indexes aside, Wednesday is a quiet return for major regions. Things heat up slightly tomorrow with US initial jobless claims as well as some potentially interesting housing reads.
The week ends with Spanish inflation numbers, always interesting as the ECB attempts to set a harmonised interest rate for all its jurisdictions.
Things are always quiet around the turn of the year, but that masks the fact that 2024 is set to be a crunch year. Central banks will have to keep markets in check as they judge when to cut interest rates, while elections in the UK and the US could lead to huge swings in exchange rates. Keep an eye out for our Quarterly Forecast, which highlights all the key trends you need to watch out for in 2024.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your Business Trader on 020 3918 7255 to get started.
GBP: Are we there yet?
GBP/EUR dipped by around 0.75% last week, while sterling rose slightly against a weakened dollar.
The question for the UK now is when the recession will arrive. With GDP falling and inflation now below 4%, the Bank of England will surely come under increasing pressure to lower borrowing costs. They are not expected to fold soon, but the heat may ramp up if the Fed and the ECB act first.
GBP/USD: the past year
EUR: Quietly counting gains
The euro gained on its major rivals last week, as GDP figures disappointed on both sides of the Atlantic.
The eurozone benefitted from a general weakness in rival currencies, as well as favourable inflation comparisons that continued to show the ECB was on the right track.
USD: Questions for Powell
The US dollar shed some value against the pound and the euro in the pre- and post-Christmas sessions.
Fed chair Jerome Powell would have been pleased by the slight dip in the final Q3 US GDP read, but he still has some tricky data to analyse. With durable goods orders and personal income and spending on the rise, Powell has a tough course to plot as markets continue to position themselves for early rate cuts.
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