Weekly Forex Report - GBP and EUR on the front foot, USD fights back

Sterling and the euro both started last week on the front foot against the dollar but the greenback fought back.

The dollar’s initial decline was fed by speculation that the US Federal Reserve was going to make a dovish pivot and start easing its aggressive rate increases but this was put to the sword by speeches by various policymaker speakers and robust economic data.

The week finished with the non-farm payrolls report, which was strong enough to give no reason for the Fed to stop raising rates soon.

GBP/USD started the week just below 1.11 and rose up to 1.1484 before finishing back almost exactly where it started.

Similarly, EUR/USD kicked off at 0.973 and butted heads with parity but could not break through on Tuesday night and Wednesday morning, then tumbled back again to square one.

The dollar index fell from just over 112 to around 110 before closing Friday at 112.75.

Both dollar and euro’s biggest gains in the past week were against the Russian rouble, up 4.4% and 6.4% respectively.

Other big movers over seven days are the Canadian dollar against the Swiss franc, with CAD/CHF up 1.3%, with CAD/JPY also up 1%.

This week there’s more macro for the markets to munch on.

USA

Hot on the heels of the US jobs report, the dollar will remain in focus as speculation swells about the Fed’s interest rate path.

Markets are constantly looking for signs indicating when the Fed might draw its hiking cycle to a close.

After several Fed officials insisted they do not want to stop hiking prematurely, the minutes from the last meeting of the rate-setting Federal Open Market Committee are likely to echo this and so may not be particularly market moving.

US consumer price data on Thursday may have more of an effect.

Annual CPI has fallen from 9.1% in June to 8.5% in July, 8.3% in August and is expected to have fallen further to around 8.1% last month, which is still much higher than the Fed’s target.

US retails sales on Friday are expected to remain subdued and both they and consumer price data are unlikely to move the Fed or weaken the USD, according to analysts at UBS.

UK

For the UK, there is BRC retail sales data on Monday, then the official unemployment and wage numbers from the Office for National Statistics on Tuesday, with Wednesday morning busy with monthly gross domestic product for August, industrial production, the index of services and trade balance, then on Thursday the Bank of England will post its credit conditions survey.

Tuesday’s jobs report from the UK Office for National Statistics will bring unemployment and wage growth into focus, in light of what it signals the economy is giving to the Bank of England, though inflation is by far its main concern.

A month ago, the average weekly wage in the three months to August, including bonuses, was shown to have grown 5.5% year-on-year, well below the prevailing rate of inflation.

The unemployment rate fell back to the pre-pandemic level of 3.6% – though this was driven by a jump in the number of people classed as inactive due to an increase in long-term sickness.

Job vacancies fell for the second months in a row to 1.27mln, which was higher than the numbers of unemployed looking for work, which was nearer 1.2mln. This remains a good-sized buffer but could be read as a sign that the economy is slowing down.

EU

Elsewhere there are important inflation releases for Germany on Thursday and China on Friday, while EU industrial production is on Wednesday and there’s EU trade data on Friday.

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