Last week’s UK Budget proved to be a non-event for the currency markets, with Sterling ending the week virtually unchanged against both the Euro and the US Dollar. This lack of significant reaction, however, has removed a major piece of political risk and uncertainty that had been weighing on the Pound. With that hurdle cleared, Sterling may now have some modest room to gain ground from here.
As we enter the final and fastest month of the year, we expect overall market volatility to soften. With global liquidity naturally drying up after the next couple of weeks, we are not anticipating major swings through December- making focused, selective trading key.
Here is a look at the data releases that will shape market sentiment this week.
Monday: Manufacturing PMI – A Look at Global Factory Health
Monday begins with the highly anticipated Manufacturing Purchasing Managers’ Index (PMI) data from the Eurozone, the UK, and the US. These reports offer a first look at the health of the global factory sector.
- UK Manufacturing PMI: Expected to remain unrevised (around the 50.2 level). The UK is the only major economy expected to remain above the crucial 50-mark, which separates economic expansion from contraction. A better-than-expected print could provide a further boost to Sterling.
- Eurozone Manufacturing PMI: Expected to remain unrevised, indicating ongoing contraction (below 50). This continues to put pressure on the Euro.
- US Manufacturing PMI: Expected to be higher, but still land around 49.0. While forecast to improve, the US is still expected to be in contraction territory. This generally acts as a negative signal for the US Dollar (USD) as it reinforces expectations for slower economic activity.
Tuesday: The Inflation Test for the Euro
The focus shifts to Europe on Tuesday, where two critical data points will be released:
- Eurozone Flash CPI: Expected at 2.1%. This reading is critical. Being very close to the European Central Bank’s (ECB) 2.0% target may reinforce the case for the ECB to consider rate cuts in the near future.
- Market Impact: If the actual figure comes in lower than expected, the Euro could face renewed selling pressure as markets price in faster rate cuts. If it surprises to the upside, it could lend the Euro some strength.
- Eurozone Unemployment Data: Expected to remain stable at 6.3%.
Wednesday: US Employment and Global Services
Wednesday brings a look at the non-manufacturing sector, the backbone of most developed economies, alongside a key US employment report:
- Services PMI (Eurozone, UK, U.S.): These reports will be closely watched for whether activity is expanding (above 50) or contracting (below 50). The UK’s service sector remains particularly important for the overall health of its economy.
- US ADP Employment Data (November): This report is a key precursor to the official Non-Farm Payrolls (NFP) data. It is currently expected to show a lower number of jobs added, suggesting a potential cooling in the US labour market.
- Market Impact: A significant miss to the downside would likely weigh heavily on the US Dollar, as a weaker jobs market increases the probability of earlier interest rate cuts by the Federal Reserve.
Thursday & Friday: Retail and Growth Figures
The week closes out with two crucial measures of economic momentum:
- US Retail Sales (Thursday): Forecast to come in at 0% month-over-month. While better than a negative print, a flat result is a poor indicator of consumer spending health. Since consumer spending is a primary driver of the US economy, a weak number here will reinforce the narrative of slowing growth and could weaken the USD.
- Eurozone GDP Numbers (Friday): Expected to be confirmed at an unrevised 0.2% growth. This shows that the Eurozone economy is only managing marginal growth, keeping pressure on the ECB to consider stimulus options.
In Summary: The week’s data provides the first real-time indicators post-Budget. A stable or positive Manufacturing PMI from the UK is key for the Pound, while any significant weakness in the US employment or retail sales data could be the catalyst for the US Dollar’s next leg lower.
GBP/EUR 1.1371 GBP/USD 1.3219 GBP/AED 4.8576
GBP/AUD 2.0188 GBP/CHF 1.0615 GBP/CAD 1.8492
GBP/NZD 2.3051 EUR/USD 1.1609 GBP/ZAR 22.5938