Market Report - 06/12/2023
Euro sell off continues as German factory orders dissapoint
It’s been another volatile week in the FX markets, with central bank rate cut expectations and a plethora of EU & US macroeconomic data driving these choppy markets.
The USD regained strength versus the GBP and other major G10 peers after the US ISM survey data release showed continued growth in November and cautioned market participants against overzealous Federal Reserve interest rate cut expectations.
The GBP/USD rate fell back to 1.26 after the ISM survey of the services sector printed at a solid 52.7, which topped analyst expectations for 52 and represented a pickup in activity from October's 51.8. Since then, the cable pair has retreated even further, currently trading relatively modestly at 1.2588
For context in regard to the ISM survey data - a reading above 50 is consistent with expansion, confirming the overall growth rate in the largest sector of the U.S. economy remains healthy.
The Dollar fell continuously through November as markets brought forward expectations for the timing of Fed rate cuts, with many analysts predicting we could see the first as early as Q1 2024, judging that inflation and economic activity have fallen fast enough to warrant such a move. However, should incoming data suggest the economy is more robust, which would be consistent with a moderation in inflation's decline, rate cut expectations would likely retreat. As a result, this could likely be supportive for the USD.
Looking at the EUR – it appears the single currency has continued to be sold off during the midweek trading session following very underwhelming Factory Order data out of the EUs largest economy, Germany. Hopes that Germany's manufacturing and industrial sector was turning a corner were slashed on Wednesday after German Factory Orders declined a massive 3.7% month-on-month in October according to Destatis, disappointing against expectations for growth of 0.2%. This represents a sharp slowdown from September's growth of 0.7%.
GBP/EUR has gained further ground in the aftermath of this data release, with 1.17 very much a possibility again for the first time since September. We have seen a daily high of 1.1691, with the rate currently trading slightly beneath this level, around 1.1684. There seems to be a psychological resistance level around 1.1703, potentially hampering upside too far north of this, however, if further European data underperforms for the rest of this week and the resistance level is breached, there could yet be further gains likely.