Home Daily Commentaries Quiet week ahead before central bank announcements

Quiet week ahead before central bank announcements

Daily Currency Update

UK construction PMI data which posted a slightly worse than expected result at 50.4 was the only highlight for the pound this morning, as a quiet week lies ahead for the currency. Speculation around future movements from the Bank of England appears to be driving movements in the currency of late, with some corners of the market expecting that, with inflation not hitting some of the forecasts in the summer, that the bank may actually cut rates again at some point in 2023. However, as we saw with the Federal Reserve earlier this week, the landscape around interest rate forecasts is changing constantly and quickly, and this will keep volatility up over the start of 2023.

Key Movers

As we discussed in yesterday's commentary, the main headline for the US Dollar and the reason why the currency is pushing stronger stemmed from the US non farm payroll and service sector demand. There are now arguments around a higher interest rate peak to help contain inflation as the stronger data gives the central bank room to do this. However, some corners of the market are still suspecting a slow down in the pace of interest rate hikes into next year. Similarly to the Bank of England, the uncertainty around exact paths is high, and thus we can expect the currency to remain volatile into 2023.

This morning, German October industrial output posted a -0.1% vs -0.6% m/m expected. Off the back of this, we saw the Euro drop against the US Dollar but has u-turned since and is now back above the 1.0450 handle. Markets now wait for Christine Lagarde who is speaking tomorrow which should create some movement for the Euro. Again, the market is anticipating what the ECB may do next week and beyond in terms of controlling their own inflationary pressures.

Expected Ranges

  • GBP/USD: 1.2065 - 1.2155 ▼
  • GBP/EUR: 1.1480 - 1.1575 ▼
  • GBP/AUD: 1.7880 - 1.8210 ▲
  • EUR/USD: 1.0380 - 1.0510 ▼