Spectrum FX Weekly Report

GBP:?The British Pound managed to rally over the course of last week, combating a raft of dire economic news from UK businesses and the confirmation that the country had entered a prolonged recession. Employment data on Tuesday brought a mixed picture to GBP, with a rise in employment figures serving to temper rate hike bets from the Bank of England. However, the pound staged a turnaround with the unveiling of Chancellor Jeremy Hunt’s Autumn Statement. Furthermore, forecast-beating retail data brought Sterling back to healthier levels on Friday, ending the week’s trade on a higher note. Ultimately, tax hikes and a raft of public spending, alongside an increase in Government borrowing, seem to have restored investor confidence that, although the short-term forecast may be bleak, the longer term view is definitely looking more promising.

EUR:?The current situation within the eurozone has not changed much over the past week, with geopolitical tensions remaining and giving rise to energy threats that seem to ebb and flow periodically. That being said, from an ECB standpoint, things are getting interesting. ECB officials seem to be divided in their opinions with some favouring a sustained aggressive stance while others are looking at introducing alternative Quantitative Tightening measures sooner than expected to avoid such hawkish interest rate hikes. In fact, ECB’s Knot has been vocal about using an earlier implementation of QT to quell inflationary pressures and thus reduce the peak rate. However, ECB President Christine Lagarde, seems to favour interest rate hikes as a superior tool to curb inflation.

USD:?The Fed is set to publish the minutes of its November meeting on Wednesday with investors eager for any sign that policymakers may be considering slowing the tightening process after hiking rates more rapidly this year than any time since the 1980s. Fed Chair Jerome Powell and other policymakers have signalled that the central bank could shift to smaller rate hikes next month to avoid tightening more than necessary while simultaneously sending the economy into recession. In fact, Powell has said rates may need to go higher than the 4.6% that policymakers thought in September would be needed by next year.?Ultimately, the dollar index peaked at a 20-year high of 114.78 in September and has been falling ever since. With the currency on track to post its biggest quarterly loss since 2017, investors are now asking whether it has passed the peak.?

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