UK: Weekly FX Market Update 5 December

GBP

• GBPUSD had a positive week gaining 1.5%.

• Sterling strengthened following Bank of England Economist Pill and his hawkish comments about ‘doing more’ on interest rates in coming meetings.

• Non-Farm Payroll on Friday was bullish, allowing the USD to claw back some lost ground.

• This week the main economic highlights will be Services Purchasing Managers Index (PMI) released today (Monday) and Consumer Inflation Expectations on Friday.

• With the US economy still growing strongly, can Sterling continue its bounce from the September low at 1.0360?

EUR

• The Single Currency had a good week against the US$, strengthening by 1.4%.

• ECB President Lagarde continued her commitment to reducing inflation.

• Eurozone CPI was released lower than expected at 10%.

• Economic data releases include Retail Sales released today (Monday) & Revised GDP (Tuesday).

• Can the Euro continue its recent gains against the US$?

• ECB President Lagarde speaks twice this week. Will she continue her hawkish mantra?

USD

• US GDP was better than last month’s +2.6% gain, showing a 2.9% growth rate.

• However, the Dollar weakened due to Fed Chair Powell saying that the time for moderating the pace of rate hikes may come as soon as December.

• Non-Farm Payrolls data showed a tight US labour market. The headline release showed 263k new jobs were added in November, with average hourly earnings growing 5.1% on an annual basis against last month’s 4.6% rate.

• This week the market will consider what the strong jobs report means for US interest rates and looks ahead to the release of the Producer Price Index on Friday.

• Could the Fed be forced to hike rates more aggressively than previously thought and could this encourage more US$ buying?

RoW

• China’s zero-tolerance covid policy has been attracting huge negative sentiment as the Chinese population demonstrate against it and criticize Premier Xi’s policy.

• There is some evidence that covid restrictions are being relaxed.

• The market has started to trade in a ‘risk on’ manner at times. Could this continue?

Events for the weekend ahead:

Mon Dec 5

01:45 EUR ECB President Lagarde speaks

09:30 GBP Final Services PMI

10:00 EUR Retail sales

15:00 USD ISM Services PMI

Tue Dec 6

03:30 AUD Cash rate Decision/RBA Statement

Wed Dec 7

00:30 AUD GDP QoQ

10:00 EUR Revised GDP QoQ

15:00 CAD Bank of Canada Interest Rate Decision

Thu Dec 8

00:30 AUD RBA Bulletin

12:00 EUR ECB President Lagarde Speaks

Fri Dec 9

09:30 GBP Consumer Inflation Expectations

13:30 USD PPI

15:00 USD Preliminary UoM Consumer Sentiment