Last week was another volatile one for global markets, and much of the spotlight fell on Europe. France entered a fresh wave of political and economic turmoil after Prime Minister François Bayrou was ousted in a confidence vote on 8 September. His plans to deliver €44 billion in spending cuts, including controversial proposals such as scrapping public holidays, proved deeply unpopular and ultimately cost him parliamentary support.
President Emmanuel Macron moved swiftly to appoint 39-year-old Sébastien Lecornu as the new Prime Minister, but he inherits a difficult challenge: leading without a parliamentary majority while calming widespread public anger. Protests under the banner “Block Everything” erupted across the country, with strikes, road blockades, and over 300 arrests reported. To make matters worse, Fitch downgraded France’s credit rating, citing ballooning debt and deficits. With fiscal credibility in question and social unrest intensifying, the Lecornu government faces a delicate balancing act- one that could heavily shape Macron’s legacy.
Turning to this week, while political risk in Europe may take a back seat, there is no shortage of key economic events ahead.
Monday starts quietly with Chinese retail sales and industrial production, followed by the US Empire Manufacturing Index, which is forecast to fall sharply- potentially weighing on the Dollar.
Tuesday brings the UK labour market report, where unemployment is expected to hold steady at 4.7%, with average earnings rising, a supportive sign for Sterling. Eurozone industrial production is forecast to improve slightly to 0.3%, while US retail sales are expected to slow to just 0.3%, a negative for the Dollar if confirmed.
Wednesday is the big one. UK inflation kicks off the morning, with headline CPI expected to remain at 3.8% and core easing slightly to 3.7%. Eurozone CPI is forecast unrevised at 2.1%. The real focus, though, will be the Bank of Canada and Federal Reserve meetings. Both are widely expected to cut rates by 25bps, but all eyes will be on forward guidance. With markets pricing in as much as 50bps of further Fed cuts this year, the tone of Powell’s comments could be pivotal, and bearish for the Dollar if dovish.
Thursday brings two more central bank decisions: Norges Bank, where a 25bps cut is expected, and the Bank of England, which is forecast to hold rates steady at 4%. A pause from the BoE could be taken as bullish for Sterling, particularly against the Dollar.
Finally, Friday wraps up with the Bank of Japan expected to keep rates unchanged at 0.5%, before UK retail sales take the spotlight. A 0.4% decline is currently forecast, which could take some of the shine off Sterling heading into the weekend.
GBP/EUR 1.1565 GBP/USD 1.3580 GBP/AED 4.9897
GBP/AUD 2.0386 GBP/CHF 1.0808 GBP/CAD 1.8792
GBP/NZD 2.2787 EUR/USD 1.1728 GBP/ZAR 23.5551