GBP gives mixed signals against Euro and USD
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Daily Forex Market Report 12-Dec-2022: GBP gives mixed signals against Euro and USD as soft economic data continues to roll in
The pound looks set for a mixed trading session to kick off the new week in response to a string of dour economic readings.
Industrial output fell by 2.4% in October, while GDP rose only 0.5% month on month/1.5% year on year.
Although this was a rebound from the previous reading of -0.6%, the three-month average was still in the red at -0.4%.
More signs of tightening financial conditions could be on the way, depending on tomorrow’s unemployment data and wage inflation, combined with Wednesday’s inflation reading, all of which will influence the Monetary Policy Committee’s interest rate decision on Thursday.
Hawks would prefer to see a 50 bps hike to 3.5%, though with GDP expected to fall in the coming months, a softer 25 bps isn’t off the table.
Cable finished the Sunday session 20 pips lower at 1.223, and is currently changing hands slightly higher at 1.224 in this morning’s Asia window.
Source: capital.com
EUR/GBP added 0.12% yesterday and continued to add pips this morning, though at 86.03p, is still below the 20-day moving average due to Sterling’s bumper end to last week.
The euro area also has an interest rate decision later this week, with 50 bps as the running assumption.
EUR/USD has been fairly subdued in anticipation, having generally stuck close to the 1.05 mark for the past nine sessions. The pair was changing hands at 1.052 as of 8am.
Despite minor gains in the past two sessions, the US Dollar Index (DXY) continues to beat a downward path in the wider context, and currently stands at 104.71.
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Employment data also failed to impress, while the goods trade balance widened its deficit more than expected.
As such, Federal Reserve chair signalled a slower pace of interest rate hikes in the months to come.
"It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down,” said Powell, though he did note that the terminal rate could be "somewhat higher" than the 4.6% indicated by in the September projections.
EUR/GBP closed the Wednesday session at .863, around 12 basis points below the intraday high, though the euro has the slight upper hand this morning having added a few pips.
Yesterday’s EU headline inflation data came in at a flat 10% against a 10.3% forecast, though that figure is still unacceptable high given the 2% target, so excessive rate hikes are likely to stay on the agenda in the coming months.
Combined with Powell’s dovish overtures, EUR/USD jumped a full percentage point to 1.042 yesterday, and continued to rally another 0.33% to 1.045 in today’s Asia window.
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