Market Report - 06/11/2023
GBP outlook boosted following hawkish pause; Downside worries fading
Following a strong end to the week for the pound following the ‘hawkish pause’ from the Bank of England; the GBP has also started the new week on the front foot.
A strong conclusion to the previous week has now lessened the possibility of a notable decline in the GBP/EUR rate during the upcoming days, which will be dominated by speeches from the Bank of England, a plethora of Eurozone data releases, and the release of UK GDP statistics for the third quarter on Friday.
Before the weekend, the pound gained ground versus the euro thanks to a nearly euphoric market response to some softer-than-expected U.S. data that reduced the likelihood of additional rate hikes by the Federal Reserve. This reduced the cost of borrowing and U.S. yields both domestically and internationally, reducing "risk on" assets like the pound.
GBP/EUR has gained nearly 0.8% following the previous two week of losses and currently trades comfortably above 1.1520. At time of writing, the interbank rate was seen around 1.1550.
The release of the UK GDP figures for the third quarter, scheduled for 07:00 GMT on Friday, is the most significant data release of the upcoming week. Currency markets, who are preoccupied with growth disparities, will need to consider this information carefully before making any decisions on the Pound.
In the second quarter, the UK economy expanded by 0.2% on a quarterly basis and by 0.6% on an annual basis. Every indication suggests a deceleration from these levels. However, we have to wait for the two big guns of the Bank of England, Governor Andrew Bailey and Chief Economist Huw Pill, before we learn the GDP number.
Looking at the dollar - GBP/USD gathered bullish momentum and touched its highest level in 7 weeks above 1.2400 on Monday. According to City analysts “the pair turned technically overbought but buyers could remain interested in case 1.2400 stays intact as support.” This suggests that further upside may be possible for the pair, as GBP strength continues to dominate markets.
The Unemployment Rate in the US edged higher to 3.9% in October from 3.8% in December, with Nonfarm Payrolls increasing by a weaker-than-forecast 150,000 in that period. The US Dollar (USD) continued to weaken against its major rivals after October jobs report and GBP/USD registered impressive gains ahead of the weekend..