The US dollar hovered near a 9-month low against the euro as traders weighed the risks of a US recession and the path for Federal Reserve policy.

Yesterday saw a substantial risk-off environment with the US Dollar rising throughout the day against its peers. It was a relatively quiet day on the data front however, US initial jobless claims fell 13k to 216k, the lowest level since February.
The Bank of England’s survey of businesses suggests that price pressures are falling which is good news. ING economists still see a hike in the September meeting but have stated that recent comments from the BoE could mean it’s the last increase in the central banks tightening cycle.
GBP reached a low of 1.2446 yesterday marking the lowest level for cable since early June. Likewise, EURUSD fell to a low of 1.0686 yesterday which was the pair’s lowest point since early June as well.

The US held the macroeconomic headlines on Friday. The manufacturing sector contracted in November for the 13^th consecutive month, registering 46.7 percent which was below the forecast 47.9. This was followed by Fed Chair Powell speaking twice in Atlanta, as market participants searched for any clues to the next move from the Fed in its progressive fight against inflation. A growing sentiment that the US will start to cut interest rate in the first half of 2024 has led to a selloff in the USD recently and Powell did little to change this sentiment, despite warning that it was ‘premature’ to speculate when policy might ease. Smaller data releases elsewhere on Friday showed UK and European manufacturing PMI picked up from previous releases and exceeded forecast. However, both remained under the 50.0 gauge which tilts from contraction into expansion. The Nationwide house price index from the UK showed a continues recovery in November. GBP/USD peaked at 1.2720 on Friday and GBP/EUR touched 1.1680. EUR/USD has continued to decline since breaking 1.1000 last Wednesday.

Data is thin on the ground today, but we anticipate employment data from the US over the week and Bank of England Bailey is due to hold a press conference on Wednesday about financial stability report. Australia also has some key releases with their interest rate decision expected overnight and GDP quarter-on-quarter overnight into Wednesday.

On Monday, the euro gained ground against the US dollar, with the USD continuing its decline from the previous week. The pressure on the US currency persisted due to signals from the Federal Reserve last week, suggesting the potential for interest rate cuts in the coming year.

Anticipation grew last week regarding the likelihood of the Fed reducing its benchmark overnight interest rate by 0.25% at the March meeting. This speculation arose after the US central bank maintained its policy rate within the 5.25%-5.50% range and officials projected a total of 0.75% in cuts for the next year.

UK Retail sales data exceeded expectations early on Friday with the May 2024 rising 2.9% following the 1.8% fall in April.

The Pound holding firm against EUR & USD, tariffs, trade war, European interest rates, chancellor reeves, UK labour data

GBP and EUR continue to outshine the Dollar, driven by political pressure on the FED, France CPI, US core PCE, UK retail sentiment