Sterling Strength, Euro’s Reckoning, and Dollar’s Caution in the Week Ahead
GBP
Sterling has been displaying strength against a majority of its G10 counterparts over the past fortnight, setting the stage for another significant week ahead. The upcoming data calendar is brimming with impactful releases throughout the week, leaving us to wonder whether the Pound will extend its 2023 highs or experience a retracement in what appears to be an overbought market. As of this afternoon, GBP|EUR is currently positioned at 1.1680, and GBP|USD at 1.2565. The potential for slight upside remains if data surpasses expectations, but in the face of disappointing releases, there’s a risk of more pronounced downside, given the existing market conditions.
The Bank of England has emerged as a key pillar of support for Pound Sterling, with policymakers clearly expressing discomfort over heightened expectations for interest rate cuts in 2024.
Navigating the bustling UK data calendar ahead, Tuesday brings the release of wage data. Wednesday is marked by the unveiling of UK GDP figures for October. Thursday takes centre stage with the Bank of England’s interest rate decision and guidance update, while Friday concludes the week with the release of the S&P Global PMI for December. Stay tuned as these events shape the trajectory of Pound Sterling in the coming week.
EUR
The Euro experienced a downturn as market participants swiftly adjusted their expectations, advancing the timing and magnitude of ECB rate cuts projected for 2024. There’s a potential for the Euro to regain some support if market sentiments temper their outlook on the ECB and defer rate cut expectations on Thursday. Presently, futures markets indicate an estimated 80 basis points of BoE rate cuts in the coming year, accompanied by an anticipation of 140 basis points of easing by the ECB.
Given the absence of high-impact data releases from the Eurozone this week, all eyes will be on Thursday’s ECB Monetary Policy Statement. This event is poised to play a crucial role in shaping the Euro’s trajectory, with market participants closely monitoring any indications or guidance from the ECB.
USD
Investors are adopting a cautious stance in anticipation of pivotal events unfolding in both the US and the UK this week. The spotlight will be on the UK employment data, featuring Employment Change, Claimant Count Change, and the ILO Unemployment Rate, all set for release on Tuesday. Simultaneously, attention will be directed to the US, where the Consumer Price Index (CPI) is scheduled to be unveiled on the same day.
Notably, last week, Jerome Powell, the Chair of the US Federal Reserve (Fed), emphasised that it would be premature to assert with confidence that the Fed had attained a sufficiently restrictive stance to rein in inflation. Powell further underscored the Fed’s readiness to tighten policy further if deemed necessary. Despite this, there’s speculation among investors that the positive US Nonfarm Payrolls (NFP) report might sway the Fed to postpone rate cuts in 2024, providing a short-term boost to the Dollar.
The focal point for the Dollar in the upcoming week centres around the Federal Reserve’s policy decision, with expectations leaning toward unchanged rates. This, in conjunction with the Bank of England rate decision on Thursday, has the potential to inject volatility into the market. Currently, the major pair is trading near 1.2565, having recovered some ground from last week’s lows of 1.25. Stay tuned for these pivotal events shaping the Dollar’s trajectory in the coming days.
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