This week we have seen a week of two halves in the currency markets, characterised by distinct phases. The Pound commenced the week with a continuation of its impressive gains from the previous Friday against both the USD and the EUR, reaching multi-month highs against the US Dollar. However, this initial buoyancy proved short-lived, as the Pound experienced steady losses against both the US Dollar and Euro as the week progressed.

The pivotal moment in the week, especially for the Pound’s fortunes, can be attributed to signals from Bank of England officials hinting at possible rate cuts in the UK in 2024. This announcement coincided with the Pound’s attempt to recover earlier losses, and its subsequent struggle to mount a substantial comeback is evident. While the Bank of England undoubtedly considers a broader economic landscape, such timing can be frustrating for currency markets.

The spotlight remains on upcoming major developments, notably the release of UK GDP and US consumer sentiment data out tomorrow. In the UK, the focus lies on whether the month-on-month economic performance will defy forecasts and remain above 0.0%, signalling continued growth. A failure to do so could potentially plunge the UK into a “technical recession,” a scenario forecasted by analysts to persist until 2025. Such an outcome might trigger a significant selloff in the Pound as investors seek refuge in safe-haven currencies like the USD.

Looking ahead to Friday, the release of US Consumer Sentiment data looms large as a critical indicator of economic health, closely monitored by both the Federal Reserve and investors. Strong results could propel the USD and further weaken the Pound, impacting sentiment as we head into the weekend.

While other events, such as weekly US unemployment claims, often have limited impact due to how regularly it is released. We also had Speeches by Andrew Bailey and Jerome Powell made headlines. Their impact on the markets was limited, with neither key speaker making comments of any significance.

Turning our gaze towards the upcoming week, the Pound’s prospects against the US Dollar appear challenging, especially if consumer sentiment causes a depreciation heading into the weekend. The anticipation is heightened by a week heavy on US economic data, featuring key releases such as CPI, PPI, and Retail Sales figures. These releases are considered pivotal for currency markets, potentially making the Pound’s journey through the week arduous. The sole major economic release from the UK, retail sales, is scheduled for Friday and is expected to reflect a decline as consumers curtail spending and prioritise savings for the upcoming festive season.