UK: Weekly FX Market Update 7 November

GBP

• The Bank of England raised rate by 0.75% on Thursday.

• US Fed Chair Powell also hiked rates by 0.75% and said that there could be more to come.

• UK Services PMI fell below 50, showing contraction for the industry for the first time since covid.

• BoE Speakers are scheduled for Tuesday, Wednesday & Thursday with GDP on Friday.

GBPUSD fell 2.5% last week, even though the Bank of England (BoE) hiked rates by 0.75% to 3%, the largest single rate hike in 30 years. This followed the Federal Reserve, who also hiked rates by 0.75% on Wednesday, however, with a more hawkish rhetoric.

Whilst Fed Chair Powell said that there could be more hikes in the future, Governor Bailey stated that the peak in interest rates will be ‘lower than priced into financial markets’ and that ‘the BoE shouldn’t increase rates too far’. This casual forward guidance, alongside a forecast for a 2 year recession, also underpins why GBPEUR fell by 2%.

As the ECB and Fed continue to talk in hawkish terms, and the BoE adds a tinge of dovishness to its outlook, could this divergence keep the pressure on the pound?

EUR

• ECB President Lagarde says that the ECB may need restrictive rates to achieve its price goal.

• She continued that a ‘mild recession’ wont be sufficient in itself to stem soaring prices.

• Latvian ECB Board member Kazaks said he expects a recession and that euro interest rates need to go ‘much higher’.

• Eurozone Sentix investor confidence is released on Monday. Can it get decline to 2020 lows around -46.5 or improve from last month’s reading of -38.3?

• The ECB Economic bulletin is released on Thursday and the European Union publishes its economic forecasts on Friday .

USD

• Fed Chair Powell out hawked the hawks, by hiking interest rates by 0.75% for the fourth time in a row.

• Powell also stated that the ultimate rate level could be higher than previously expected, and that it was very premature to think about ‘pausing’ rate hikes.

• US ISM Manufacturing PMI data at 54.5 is a big improvement on UK and Eurozone Manufacturing PMI’s, supporting the US economy’s relative performance over its peers.

• Non-Farm payrolls again showed a strong labour market with 261k new jobs added in October.

• US CPI will be the markets focus on Wednesday. Could another strong CPI release send the US$ soaring again?

Events for the weekend ahead:

Mon Nov 7

09:30 EUR Sentix Investor Confidence

20:40 USD FOMC Mester Speaks

Tue Nov 8

All Day Congressional Elections

09:00 GBP BoE MPC Pill Speaks

09:30 AUD RBA Gov Lowe Speaks

Wed Nov 9

08:00 USD FOMC Williams Speaks

13:00 GBP MPC Haskel Speaks

Thu Nov 10

09:00 EUR ECB Economic Bulletin

13:00 GBP MPC Ramsden/Tenreyro Speak

13:30 USD CPI

16:50 CAD BoC Macklem Speaks

17:30 USD FOMC George Speaks

Fri Nov 11

07:00 GBP GDP/Goods Trade Balance/Industrial Production

10:00 EUR EU Economic Forecasts

11:00 GBP NIESR GDP Estimate