Another week has come and gone, marked by high volatility and the release of key economic data from the US, UK, and Eurozone. The central question remained: could the Pound hold on to its recent gains?
The first key data point of the week was released on Tuesday, with the UK’s Claimant Count Change, a crucial indicator of employment strength. Forecasts predicted a significant increase from the previous reading of 0.3k (an unusual release due to a change in parameters) to 20.2k. However, the final figure was considerably higher at 27.9k. This led to a brief decline in the Pound against the USD, but the Pound quickly regained its losses as UK markets opened.
Later that day, two members of the FOMC gave dovish speeches. Mary Daly, a voting member, stated that she believes the Federal Reserve is likely on track for further rate cuts. Adriana Kugler echoed this sentiment, suggesting that the Fed is making progress in reducing inflation and may cut rates again soon. These remarks led to a notable strengthening of the USD, causing the Cable rate to fall to its lowest level since mid-September.
On Wednesday, the UK was back in focus with the release of the CPI. Forecasts anticipated a slight drop in inflation below the target of 2% to 1.9%. However, the final figures showed a larger-than-expected decrease to 1.7%. Combined with the previous day’s employment data, this signalled that the UK economy is starting to feel the impact of prolonged high interest rates.
Thursday’s attention shifted to the US and Eurozone, with US retail sales data and an interest rate decision from the ECB. The ECB cut its main reference rate by 25 basis points, but in typical fashion, the move had already been priced in by the market, resulting in limited impact on rates.
In the US, retail sales surprised on the upside, with Core Retail Sales coming in at 0.5% and month-over-month sales at 0.4%. Once again, the resilient American consumer defied forecasts. This added further pressure on the Pound, leading to renewed downward movement for GBP/USD.
On Friday morning, the Pound experienced a notable recovery following the release of UK retail sales data. Forecasts had predicted a sharp decline into negative territory, at -0.4%, following an impressive previous reading of 1%. However, the actual release came in at 0.3%, which led to a resurgence in Sterling strength. As a result, GBP/EUR reached levels not seen since April 2022.
Looking ahead to next week, the economic calendar is relatively quiet. The main focus will be Thursday’s PMI data releases from the UK, US, and Eurozone. Additionally, Bank of England Governor Andrew Bailey is scheduled to speak twice, which could introduce some volatility into the markets.