Last Friday’s sell-off of the USD, following an unexpected rise in unemployment to 3.9%, contradicted recent trends in the US markets. Inflationary measures appeared to be starting to constrain the job market, leading to a sharp drop in the Dollar’s value against the Pound and Euro. With the USD starting the week on shaky ground, it promised to be an interesting one, especially with most of the data coming from the US. The question was, could the Pound and Euro hold onto their recent gains?
The week really kicked off on Tuesday with the US’s latest CPI figures. After the disappointing employment data the previous Friday, traders were closely watching these figures to decipher the likely path of interest rate cuts by the Fed. Contrary to the job data, headline inflation saw an uptick to 3.2%, surprising analysts who expected it to hold at 3.1%. This caused a strengthening of the USD. Meanwhile, the Pound was dropping in value, leading to a quick drop in exchange rates, with the Pound losing around 1% from its highs on Friday.
This trend continued throughout the week, with the Pound consistently losing ground against the USD. The big hope for a Sterling recovery came with Wednesday morning’s GDP figures. Expectations were for growth after the previous reading showed a contraction of -0.1%. The actual figure came in at 0.2%, in line with expectations, which meant minimal gains as the market had already priced it in.
Thursday brought more key US inflation data, with retail sales figures standing out after a poor performance last time. A significant uptick to 0.8% was expected, compared to the previous -1.1%. The actual figure ended up at 0.6%, not as high as expected but still impressive enough to strengthen the USD. Additionally, PPI came out stronger than expected at 0.6%, compared to the forecast of 0.3%, further bolstering the USD.
Looking ahead to next week, there’s a full slate of data releases, including interest rate decisions from both the UK and US. All eyes will be on Fed Chair Jerome Powell’s speech following the decision as traders look for indications of future cuts. Meanwhile, retail sales data from the UK is also expected, setting the stage for what could be a week of extreme volatility.
