The Weekly Round-up

Given the high levels of volatility in the FX markets recently, it comes as no surprise that this week promised more of the same. Key data points from the UK, US, and Eurozone contributed to a busy schedule. Although many expect this volatility to subside eventually, there are no signs of it doing so just yet.

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Monday was relatively quiet in terms of data releases, making it the most stable day for the GBP/USD currency pair. However, the week really took off on Tuesday with the first major release in the form of UK Claimant Count Change data. Forecasts had anticipated a drop from 102.3k to 95.5k, suggesting that the UK job market remains resilient. However, the final figure of 23.7k was a particularly impressive result, considering the pressure from sustained high interest rates. That said, average earnings fell to 4.0%, down from 4.6% in the previous reading. While forecasts had predicted 4.1%, the difference was marginal.

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Wednesday was arguably the standout day of the week, with significant information coming from both the UK and US. First up was UK GDP, which showed no growth, matching the previous reading. Forecasters had expected a slight uptick to 0.2%, but the stagnant result further indicated the pressure on the UK economy. As a result, the rumblings regarding the upcoming Autumn budget continued and it is widely anticipated to introduce strict public spending measures. Later that day, the US released its latest CPI figures. Given the recent pressure on the USD and the upcoming Federal Reserve interest rate decision, this reading carried extra significance. Most CPI readings matched forecasts, but Core CPI month-on-month came in slightly higher than expected at 0.3%, up from 0.2%. Although the increase was modest, it tempered expectations of a 50-basis point rate cut by the Fed, allowing the USD to regain some lost ground against the pound.

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Thursday’s headlines were dominated by the ECB interest rate decision. A 25-basis point cut was largely priced into the market, but the ECB opted for a more significant 60 basis point cut. However, the market reaction was muted due to the ECB’s ongoing dovish tone. President Lagarde mentioned that the recovery will face "headwinds" and that they are not out of the woods yet, signalling that future decisions will be data dependent. Later that day, the US posted PPI results, which showed an uptick from forecasts and previous readings, further reducing expectations of a 50-basis point cut in next weeks Fed meeting.

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Next week will be dominated by interest rate decisions in both the US and UK, with potential cuts and future expectations likely to drive significant market movements. Additionally, the escalating situation in Russia remains a concern, with UK Labour leader Keir Starmer flying to the US for talks with President Biden following President Putin’s statement that the US would be at war with Russia if they supplied Ukraine with long-range missiles