Daily Currency Update
GBP/USD fell back below 1.22 on Friday after peaking close to 1.2270 as end-of-quarter trading saw dollar demand amongst investors. The move lower was a little surprising given one gauge of inflation data from the US came in a touch under-par however after initially popping higher GBP/USD slid throughout the rest of the afternoon mirroring a move lower in stock markets that was seen late in the day. The pound has had a dismal few weeks as an unexpected drop in the Consumer Price Index (the main inflation indicator) on Sept 20th led the Bank of England to refuse to hike interest rates the day after when the final move up to 5.5% was widely predicted. We have also seen Retail Sales, GDP, and Services PMI data undershoot recently resulting in GBP/USD falling from around 1.31 in mid-July to the low 1.20s at present. Looking ahead this week is relatively quiet on the data front from the UK, Eurozone, and particularly US data will be the main drivers of the currency. GBP/USD has managed to regain the 1.22 level this morning as stock markets open higher on the back of the US lawmakers agreeing terms that will avoid a Federal shutdown until Nov 17th. GBP/EUR trades around 1.1540.
Key Movers
As alluded to earlier, Friday saw the United States' Latest Personal Consumption Expenditure inflation reading miss target, slowing to 0.4% m/m when a hold at 0.5% was eyed. Despite this easing of price pressures, the annualized figure rose a touch to 3.5% y/y in line with estimates, and once markets had digested the data it was seen as a net gain for the dollar. With the US economy continuing to perform solidly despite the recent series of aggressive rate hikes in the Federal Reserves, many expect that rates will be held at 5.5% for longer than previously foreseen. Another reason for the dollar advance on Friday was the latest inflation data from the Eurozone showing a bigger-than-expected fall to 4.3% from 5.3% y/y. Looking ahead this week's big event is Friday's monthly jobs report from the US with the headline Non-Farm Payrolls number expected to moderate from 187k to 168k. Markets will also be keeping an eye on the accompanying wage growth and unemployment rate. EUR/USD has pushed higher this morning with it currently up to 1.0580. Last week it dropped below 1.05 for the first time since January 6th, highlighting the recent strong performance of the dollar. However, the aforementioned agreement in the US Senate and Congress over Federal funding is permeating financial markets to the benefit of stocks and the detriment of the haven US dollar.
Expected Ranges
- GBP/USD: 1.2145 - 1.2300 ▲
- GBP/EUR: 1.1485 - 1.1610 ▲
- GBP/AUD: 1.8940 - 1.9110 ▲
- EUR/USD: 1.0495 - 1.0615 ▲