By Noam Bennaiche
Sterling starts the week close to its strongest level against the euro in 12 months. The single currency came close to a 12-month low on Friday, following a 2.4% fall in October.
The main driver has been the Bank of England, which raised interest rates from 3.75% to 4% on 5 November. Policymakers stressed that future moves would depend on incoming data, so sterling’s reaction was muted. However, the BoE is now tightening policy while the European Central Bank remains more cautious.
The dollar ended the week higher following a strong US jobs report. October payrolls rose by 165,000, against expectations of around 65,000, while unemployment fell to 4.1% and previous months’ figures were revised upwards by 84,000. The Dollar Index closed at 102.19, while GBP/USD and EUR/USD both fell by 0.7% on Friday.
The data supports the case for a December Fed rate hike. The Federal Reserve held rates on 28 October but left the door open to a further increase. After the midterm elections, markets reacted calmly to the result, with stocks rising as political uncertainty eased. As a result, the dollar’s direction this week is likely to depend more on US CPI and the Federal Reserve than on politics.
The euro remains the weakest of the three major currencies. It has fallen against both sterling and the dollar, with concerns over eurozone growth competing with movements in US Treasury yields.
Monday is light on scheduled economic data, so price action is likely to be driven by positioning and the dollar’s momentum following Friday’s session.
The key event this week is US CPI tomorrow, which will provide an important test of the Federal Reserve’s December policy outlook. UK GDP follows on Thursday 12 November. Looking further ahead, UK labour market data on 17 November and inflation figures on 18 November will be closely watched ahead of the BoE and Fed policy decisions in December.
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This week — Key Events
US CPI inflation (Oct), Tuesday 10th
UK GDP, Thursday 12th
Eurozone GDP, Friday 13th