06/12/2024
Written by: Ian Morley
GBPEUR
Summary:
The pound strengthened significantly against the euro after higher-than-expected UK inflation data. UK Consumer Price Index (CPI) rose to 2.3% year-on-year in October, up from 1.7% in September, marking the highest level in six months. The stronger inflation figures prompted markets to reassess expectations for a Bank of England (BoE) rate cut in December. Meanwhile, the euro faced headwinds as German Producer Price Index (PPI) data highlighted ongoing deflation, with prices falling 1.1% year-on-year in October.
Outlook:
The euro may remain under pressure as markets await Friday’s Eurozone and German PMI data. Any signs of economic contraction could weigh further on the single currency. For the pound, persistent inflation could bolster the case for the BoE to maintain its current rate policy, potentially supporting further gains against the euro.
EURUSD
Summary:
EURUSD traded below the 1.0600 mark amid safe-haven flows favouring the US dollar. Escalating geopolitical tensions, particularly in the Russia-Ukraine conflict, have boosted the greenback’s appeal. Meanwhile, expectations of pro-inflationary policies from the incoming Trump administration supported the dollar’s resilience.
Outlook:
Focus remains on upcoming speeches from ECB President Christine Lagarde and US Federal Reserve policymakers. Markets are closely watching for any updates on monetary policy adjustments. The euro could face further downside if Eurozone PMI data disappoints, while strong US economic data may continue to bolster the dollar.
GBPUSD
Summary:
Sterling climbed above 1.2700 against the dollar following the UK inflation report. The higher CPI figures have led to reduced market expectations of a BoE rate cut in December. Meanwhile, the dollar steadied, supported by a rebound in US Treasury yields and diminishing prospects for an imminent Fed rate cut.
Outlook:
Sterling’s trajectory will likely depend on further economic data and BoE policymaker comments. For the dollar, Friday’s US PMI data will be critical in gauging private sector activity and its potential influence on Fed policy. Near-term volatility is expected around key economic releases.
AUDUSD
Summary:
AUDUSD retreated from a one-week high, trading around 0.6515 as the US dollar regained strength. Hawkish remarks from the Reserve Bank of Australia (RBA) limited the downside for the Australian dollar, with the RBA reaffirming its commitment to restrictive policies amid inflation concerns.
Outlook:
The Aussie’s performance will likely hinge on broader risk sentiment and US dollar strength. RBA Governor Michele Bullock’s upcoming speech may provide additional clarity on future monetary policy, while US economic data and geopolitical developments could steer the pair’s direction.
Final Summary
The UK inflation data has set the tone for currency markets this week, boosting the pound while adding uncertainty to interest rate outlooks globally. Meanwhile, geopolitical tensions and central bank communications are keeping the dollar in focus. Expect heightened volatility in the coming days as key economic data and central bank remarks shape market sentiment.