GBP

The pound has found a new lease of life in the past two working days, taking advantage of the USD weakness, and improving by 2.3% very quickly on Friday and into the start of this week. GBP/USD has hit over 1.24 for the first time since mid-September. The question this week will be if it can hold that ground. Many analysts say that GBP goes up the stairs and down in the lift, meaning it takes a lot longer to gain strength than to lose it, but this move may be bucking that trend already.

This week we have BOE Governor Bailey speaking on Wednesday morning.

EUR

There is nothing Europe-focused this week on the data front, and the EUR is not adding much colour to the overall FX picture at the moment. However, European economic data continues to show some potentially concerning trends, and it seems that the ECB has taken this on board and stopped raising rates for now. EUR/USD has recovered a little ground to 1.0750, but this trend is largely driven by USD weakness and will continue to be driven by US, rather than EU, factors.

USD

Last week was dominated by central bank meetings, with the US Federal Reserve up first on Wednesday evening and holding rates at 5.25-5.50%. With inflation (CPI) in the US coming down to 3.7%, the Fed is much closer than most to its target inflation of 2% and is therefore taking a ‘wait and see’ approach to further monetary policy changes. This position, although mostly priced into market rates, has put the US dollar on the back foot after four months of dominance. The final nail in the coffin for USD was the non-farm payroll jobs data on Friday, which fell far below expectations at 150k versus the expected 178k, and the USD wiped out the gains it had made over the past 6 weeks.

The week ahead sees Fed Chair Powell speak on two separate occasions, on Wednesday and Thursday, which may give the market more to digest before the next FOMC meeting on 13^th December.

AUD

A special mention to the Reserve Bank of Australia, which will meet overnight tonight (Tuesday 3:30am). This could be an interesting one, with Bloomberg analysis suggesting a 56% chance of an interest rate hike. The Aussie dollar has weakened significantly this year from 1.73 to 1.90 versus GBP, in due to the RBA’s reluctance to raise interest rates past the current level of 4.1%. A change in that policy could significantly change AUD’s fortunes going into the end of the year.