Following last week’s high levels of volatility, this week was set to follow suit with several key data points from across the globe, most prominently the interest rate decisions from both the Federal Reserve and the Bank of England. As is often the case with such releases, the headline forecasts were largely priced into the market. However, analysts closely monitored the finer details for indications of future central bank monetary policies.
The week did not disappoint, with high volatility centred around the interest rate decisions. Before delving into those, the first major release from the US this week was Tuesday’s Consumer Confidence and JOLTS Job Openings figures. Both were released at 3 PM and exceeded expectations. Consumer Confidence was forecast to rise from the previous month’s drop from 97.8 to 99.7, but the final release saw the reading recover above the key 100 marker, reaching 100.3. Similarly, the JOLTS Job Openings outstripped expectations, with an initial forecast of 8.02m, down from the previous reading of 8.23m, but the final figures came in at 8.18m. Following these inflationary figures, the USD strengthened against most major currencies as rate-cut expectations subsided further.
Wednesday featured several key data points outside of the Federal Reserve meeting scheduled for 7pm BST. The day began with Australian CPI data, which came in line with the forecast and helped stabilise the AUD, particularly against the GBP. Next, the Bank of Japan, another currency suffering heavy losses, decided to increase interest rates by 10 basis points. We have seen GBP/JPY fall 7.62% over the past month after reaching its highest level in over ten years in mid-July. Strong CPI figures from the Eurozone did little to help the EUR gain momentum after an extended period of weakness. Subsequently, the US posted some employment figures, but with the Fed decision only a few hours away, the poor results did little to move markets.
Finally, after what felt like a never-ending barrage of data, the Fed meeting was upon us. As highly anticipated, they held rates steady. However, Powell stated that they are now closer to a cut and did not rule out a cut at the September meeting. This caused a brief sell-off of the USD, with it briefly losing value against the Pound, although the gains made by the Pound were almost entirely erased by the next morning.
Thursday’s key event was the Bank of England’s interest rate decision. The first-rate cut since 2020 was highly anticipated, and that indeed turned out to be the case. However, a tighter vote split among members indicated a hawkish cut, and Bailey’s comments suggesting a steady fall in interest rates meant the fallout from the decision was subdued. The GBP/USD fluctuated within a roughly 100-pip range immediately after—a marginal movement considering how long the market had been waiting for a rate cut. As Thursday evening approached and this morning began, the Pound steadily lost ground and is now trading at its lowest level against the USD since early July.
Later today, the US will release its latest employment data, which could see cable drop further towards levels seen before the recent Sterling strength. Following the massive week we’ve just had, it’s no surprise that next week is expected to be relatively quiet. I anticipate the Pound will trade within a relatively narrow range throughout the week.
