Week in Currency - 04/12/2023

Pound Vs US Dollar reaches a 3-month high, with GBPEUR breaking key resistant levels.

GBP

The British Pound rose to a more than a three-month high against the U.S. Dollar last week - extending its gains from the previous week. The single currency found support as "the message is getting through" that the Bank of England is serious about keeping interest rates at 5.25% for longer than the market expects. In fact, Bailey reinforced the message on Monday when he told a regional newspaper that he was concerned the fight against inflation would get tougher.

The rally also comes from data that showed that British companies unexpectedly reported a marginal return to growth in November after three months of contraction. Ultimately, the British Pound was on track for a roughly 3.8% gain for the month, its largest monthly gain in a year.

USD

The U.S. Dollar now hovers near four-month lows against a basket of currencies as less hawkish signals from Federal Reserve officials ramped up hopes for an early interest rate cut in 2024. FED chair Powell has sought to push back on speculation that the Federal Reserve had won its fight against inflation, even as traders boosted bets that the US central bank could start cutting interest rates as early as next March. In a speech on Friday, the Fed chair indicated that it was too soon to rule out further rate rises or to start discussing cuts.

Looking forward, investors await a key employment report on Friday that could influence the outlook for U.S. interest rates.

EUR

Last week, inflation in the eurozone has fallen far more than expected to 2.4 per cent in November, the slowest annual pace since July 2021, providing some relief to consumers and fuelling hopes that interest rates could soon be cut. The sharp drop from 2.9 per cent a month earlier adds to tensions between investors who hope rates will be cut soon and central bankers seeking to keep borrowing costs high until the biggest surge in inflation for a generation has been definitively tamed.

Economists polled by Reuters had expected a more modest slowdown to 2.7 per cent. The drop in inflation has prompted investors to bring forward their bets of when the European Central Bank could start cutting its deposit rate to as early as next April.

Have a good week!

Estuary FX