As the British Pound begins to recover some of the losses it sustained against the US Dollar following the US election, market corrections appear to be underway. Limited economic data from the UK this week provided an opportunity for the Pound to gain ground without significant hindrance from domestic data releases. Meanwhile, the US had the busiest week among the three major Western currencies in terms of economic reports. However, as has often been the case recently, external influences can rapidly alter market outlooks.
The week’s first major release came on Monday afternoon with the US ISM Manufacturing PMI. Forecasts predicted an increase to 47.7 from the previous reading of 46.5. Final figures, however, exceeded expectations, coming in at 48.4. While this was stronger than anticipated, it remained below the key benchmark level of 50. Consequently, the USD lost some ground against both the Pound and the Euro.
On Tuesday, the US JOLTS Job Openings report followed, continuing Monday’s trend. Forecasts anticipated an increase from the prior reading of 7.37 million to 7.51 million. Once again, the US outperformed expectations, reporting 7.74 million job openings. This bolstered the USD temporarily, allowing it to push back against both Sterling and the Euro.
On Wednesday, the US once again took centre stage with the release of the ISM Services PMI. Historically stronger than manufacturing data and critical as it remained above the 50-mark, forecasts predicted a decline from the previous reading of 56 to 55.7. However, the final figure came in significantly lower at 52.1. Although still above 50, the magnitude of the decline triggered a sell-off in the USD, enabling the Pound to make considerable gains. This movement was further supported by the US ADP Non-Farm Employment Change, which also came in slightly below expectations. Adding to the momentum, Federal Reserve Chair Jerome Powell’s statement confirmed an anticipated 25-basis-point interest rate cut this month, accelerating the USD’s decline.
Thursday’s US unemployment claims continued the pattern, exceeding expectations at 224,000 compared to the forecasted 215,000. This placed increased focus on the week’s most significant release, the Non-Farm Payroll report. A strong result could potentially reverse the GBP’s gains over the week, whereas weak figures would likely enable the Pound to reach new highs.
The market remains subject to numerous external influences. Notably, the French political landscape added uncertainty this week as the Prime Minister resigned following a vote of no confidence, becoming the shortest-serving French Prime Minister in history. This development underscores the current turbulence in European politics, which could explain the Euro’s struggle to regain lost ground against both the GBP and USD.
As we move into next week, the US is set to dominate the economic calendar with critical Consumer Price Index (CPI) data scheduled for release. The Eurozone will also face a pivotal week with the latest European Central Bank (ECB) interest rate decision. In the UK, the primary focus will be on Friday’s GDP figures. Given last month’s disappointing performance, this release could act as a flashpoint for the markets.
