The pound was met by notable resistance this week as a result of an increasingly pessimistic outlook for the UK.
Meanwhile, the US dollar soared to its highest levels since the end of 2022, before plummeting back down to earth as investors sought to book their profits.
Pound Knocked by UK’s Bleak Economic Outlook
GBP/EUR – Up one cent on the week’s opening levels
GBP/USD – Unchanged on the week’s opening levels
The Pound was placed on the defensive through the first half of this week amid warnings about the UK’s could be risk of slipping into a recession in the second half of 2023.
Sterling then fared better in the middle of the week as it was buoyed by positive risk flows, before finding further support following an upwards revision to first quarter GDP.
The UK’s PMIs will be the only notable GBP data release next week. Barring a positive revision to service sector activity, September’s finalised figures are likely to weigh on Sterling as they underpin the UK’s grim economic outlook.
Euro Driven by USD Dynamics
EUR/GBP – Down one pence on the week’s opening levels
EUR/USD – Down one cent on the week’s opening levels
The Euro initially faltered this week. The single currency was undermined by a decline in German Business morale, as well as its strong negative correlation with the US Dollar.
However, the Euro was able to mount a recovery at the end of the week as a USD selling bias made the single currency more attractive to investors, although a weak Eurozone inflation reading ultimately capped these gains.
Germany’s latest factory orders data is likely to act as a key catalyst of movement for the Euro next week. Could a rebound in order growth help to bolster the Euro?
US Dollar Unable to Sustain Bullish Run
USD/GBP – Unchanged on the week’s opening levels
USD/EUR – Up one cent on the week’s opening levels
The US Dollar enjoyed strong support through the first half of this week. The risk of a US government shutdown rattled markets, sending skittish investors flocking to safe-haven assets and propelling USD exchange rates to new multi-month highs.
However, USD exchange rates then retreated in the latter half of the week as the currency was undermined by some profit taking as well as a sizable drop in the Federal Reserve’s preferred measures of inflation, the core PCE price index.
Centre stage next week will be the latest US non-farm payrolls reading. Economists forecast job growth will have slowed again in September. Will this weaken Federal Reserve rate hike bets and apply further pressure to the US Dollar?
Australian Dollar Fluctuates amid Mixed Market Mood
AUD/GBP – Unchanged on the week’s opening levels
AUD/USD – Unchanged on the week’s opening levels
The Australian Dollar opened this week’s session on the back foot as a cautious market mood dragged on the risk-sensitive currency.
AUD exchange rates then rallied sharply in the second half of the week as a pullback in the US Dollar helped to revive risk appetite.
The Reserve Bank of Australia (RBA) will deliver its latest interest rate decision next week. The RBA is expected to leave rates on hold again at its October meeting. Could this cause the ‘Aussie’ to falter?
Key Data
Oct 2 EUR Manufacturing PMI (Sep)
Oct 2 GBP Manufacturing PMI (Sep)
Oct 2 USD ISM Manufacturing PMI (Sep)
Oct 3 AUD RBA Interest Rate Decision
Oct 4 EUR Services PMI (Sep)
Oct 4 GBP Services PMI (Sep)
Oct 4 USD ISM Services PMI (Sep)
Oct 6 EUR Factory Orders (Aug)
Oct 6 USD Non Farm Payrolls (Sep)