By Noam Bennaiche
Sterling traded in a relatively narrow range yesterday against both the US Dollar and the Euro, as markets remained cautious ahead of several major data releases later this week. GBPUSD held firm as the US Dollar stayed under pressure following softer recent US inflation signals, while GBPEUR also remained stable. Yesterday’s session was mainly about consolidation, with no major UK or Eurozone data surprises to shift expectations meaningfully.
US inflation figures came in broadly in line with forecasts, with headline CPI holding at 0.3% MoM and 2.7% YoY, while core inflation softened to 0.2% MoM and 2.6% YoY, reinforcing signs of gradual disinflation. Labour market conditions stayed firm, as ADP’s four-week average employment gain ticked up to 11.8K. In the housing sector, October new home sales slipped marginally on a monthly basis, easing from 738K to 737K. Easing mortgage rates and lower home prices appear to be lending support to demand.
After the US CPI report, President Donald Trump criticized Federal Reserve Chair Jerome Powell on his social networks, urging him to cut interest rates significantly and crediting tariffs for strong growth and easing inflation. The release of the US Retail Sales and Producer Price Index (PPI) reports later today are in focus. Unprecedented pressure from the White House to lower interest rates raises concerns over the Fed’s independence.
In Europe and Great Britain, diverging ECB and BoE policy paths could continue to weigh on Sterling. However, the geopolitical turmoil could turn less favourable for the Euro, but also for the Dollar. The situation in Iran is being closely monitored by traders. New geopolitical outcomes could give the BoE scope to be less dovish and allow the Pound to outperform current bearish expectations. Should you require assistance in managing or hedging your FX exposure, please do not hesitate to contact a member of our team.
Key data releases this week:
Wednesday
9.20 ECB’s de Guindos speech
14.30 PPI (Oct) USD
14.30 Retail Sales (Nov) USD
Thursday
8.00 Gross Domestic Product (Nov) GBP
14.30 Initial Jobless Claims USD
Friday
10.00 BOE Gov Bailey Speech