The British Pound had quite a journey last week. The Bank of England (BoE) decided to keep things stable by maintaining the interest rates at 5.25% for the second time in a row. This decision injected some strength into the Pound.
New inflation forecasts from the BoE have predicted that consumer inflation might cool down to 4.6% by the end of the year. This aligns with Prime Minister Rishi Sunak’s earlier pledge to cut inflation to 5.4% by the end of 2023. A noteworthy commitment given that inflation stood at a high 10.7% in January.
Looking ahead to the upcoming week, all eyes are on the preliminary Q3 GDP for 2023. Experts are bracing for a slight contraction of 0.1%, compared to the 0.2% growth we saw in the April-June quarter. Before the GDP data release, investors are eagerly awaiting insights from key figures at the Bank of England, including Governor Andrew Bailey and Chief Economist Huw Pill.
At the end of last week, Pound Sterling showed its strength against the Euro, with GBP|EUR at 1.1545.
Now, the week ahead is packed with crucial data releases from the Eurozone. On Tuesday, German industrial production figures for September will be out at 07:00 GMT. Then, on Wednesday, we’ll be checking in on the Eurozone’s consumer sentiment with data on German Harmonized Index of Consumer Prices and Eurozone Retail Sales.
Keep in mind, Eurozone Retail Sales might dip further in September, with forecasts suggesting a -3.1% drop, compared to the previous -2.1%. Meanwhile, UK GDP is expected to ease in the third quarter, with a projection of -0.1%, down from the previous quarter’s 0.2%.
Besides all these numbers, ECB President Lagarde will be delivering a speech on Thursday.
The US Dollar had a bit of a bumpy ride recently. Pound Sterling flexed its muscles and pushed past the immediate resistance at 1.2400, driven by growing confidence that the Fed won’t rush to raise interest rates.
The GBP|USD pair marked a six-week high following soft labor demand in the US during October. This encouraged a more risk-on approach among investors. The Dollar’s slide added some extra wind to the sails of the GBP|USD pair, even though it might face some challenges as the US Dollar corrects from its extended positions.
In the global arena, all eyes are on the Middle East, with Israeli Prime Minister Benjamin Netanyahu resisting calls for a ceasefire in a meeting with US Secretary of State Antony Blinken. Geopolitical tensions in that region continue to add complexity to the situation.
The US Dollar Index remains on shaky ground as the US economy starts to feel the impact of the Fed’s increased interest rates. In the employment department, the October data showed a bit of a slowdown, with employers hiring 150K job seekers. This was short of the anticipated 180K and even lower than the revised 297K figure from September.
On top of that, the Services PMI, a key measure of activity in the US service sector, which plays a massive role in the US economy, slipped to 51.8. That’s below the expected 53.0 and lower than September’s reading of 53.6. This data has the potential to keep the Dollar on its toes.
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