By Michael Lucas
The dominant theme of last week was a broadly strong USD, extending its second consecutive weekly gain. This was primarily driven by hawkish Fed rhetoric and stronger than expected US PMI data reinforcing expectations of continued interest rate rises to come.
The pound fell to its lowest level against the Euro and Dollar in two months on Friday. It saw a brief uptick following BoE Governor Bailey’s speech in the afternoon, but that didn’t have any lasting impact to stop the overall downward trend brought about by weak data, fears of increasing energy prices and worries about the UK’s fiscal outlook.
As we move into this week, the key data will be Friday’s non-farm payrolls out of the US, measuring the change in the number of employed people throughout the country. If the amount of jobs created is strong, this will provide further strength to the USD. A soft print could trigger the first real pullback in weeks.
Wednesday’s Core PCE reading is the other one to watch closely, since it’s the Fed’s preferred inflation gauge and will shape whether the current “hawkish Fed, strong dollar” narrative gets reinforced or challenged heading into the October 28th FOMC meeting.
Friday will also see inflation figures posted from the Eurozone, it lands right as the ECB weighs whether September’s rate hike needs a follow-up. A hot print could help EUR to extend gains on the pound seen last week.
Anyone watching the Australian dollar should note the RBA’s interest rate decision on Tuesday also. They are expected to lift their rate to 4.6% following Governor Bullock’s recent hawkish comments, any shift in this would see the AUD negatively affected.