ACM Update 18-11-24
As the “Trump Rally” continued last week, the US Dollar gained a further 2.5% versus GBP, and just over 1% versus the Euro. We heard speeches from the big three policymakers of Powell, Bailey & Lagarde also, as well as the news that the UK economy shrank in September.
The week ahead sees UK and Eurozone CPI data, the former of which is projected to show a bounce back up in the October figures.
Despite not having the headline-grabbing events of the week before, last week still lead to plenty of FX market movement. Donald Trump continued to build his team, whilst the Dollar remained the main beneficiary of his victory.
Starting off with UK data though, which was far from rosy. The UK week started with Unemployment numbers, which showed a jump back up in the three months to September. ONS figures suggested a rise from 4.0% in the previous quarter, to 4.3% in the most recent one.
In concerning news for policymakers, wage growth continues to outrun inflation, now at 4.8% in the quarter to September. In better news this is the lowest in more than two years. The number of job vacancies continues to fall, as has been the case for some time now.
The above data was followed up a couple of hours later by a speech from the Bank of England’s Chief Economist, Huw Pill. In the speech, Pill warned that there is still work to be done on inflation and made reference to the Unemployment data. He has concerns that wage growth is remaining sticky at current levels, and that could well be a factor in driving UK inflation back up.
Fellow policymaker Catherine Mann agreed later in the week, suggesting UK interest rates will remain high to fully combat inflations. Mann was the only one to vote to hold interest rates in the most recent meeting. The latest round of UK inflation data arrives this Wednesday.
After the Bank of England’s rate cut in early November, interest rates remain a hot topic. Given inflation is forecast to nudge back up, interest rates feel likely to be held at their current level in the December policy meeting (Thursday 19th). The new year is expected to see more rate cuts in the US & EU (over the whole year) than in the UK, which could well be beneficial to the Pound in the longer term.
Andrew Bailey used his Mansion House speech to talk about the UK needing to “rebuild relations” with the EU, post-Brexit. The Bank of England Governor cited that a consequence of the UK leaving the EU has been weaker trade. With the UK’s biggest trading partner being the EU, Bailey seems keen to sure up relations with the continent, amidst Donald Trump’s threats of 20% tariffs on imports.
The final bit of UK news was the UK growth data of Friday morning. This transpired to show a lack of growth in fact, with September recording -0.1% in terms of economic growth. This means the quarter to September overall saw a total growth of just 0.1% for the Labour Government’s first full quarter in charge.
Starmer & reeves made economic growth their top priority when coming into power, but instead the tax rises in their recent budget have been criticised. Many high street stores have said they will have to pass on cost increases to consumers, which in turn will lead to….. you guessed it, an upturn in inflation. Chancellor Reeves described herself as “not satisfied” with the GDP figures.
As already mentioned, Sterling faced a tough week versus the US Dollar, retreating to it’s lowest rate since mid-May, as shown in the chart below:
Over in the US, the week kicked off with Veteran’s Day bank holiday last Monday, leading to a calmer start. A week ahead of the UK equivalent, the US released their own inflation report for October, which showed an uptick. CPI moved from 2.4% last month to 2.6% this month, in line with market forecasts.
The data increases the likelihood of Federal Reserve cutting interest rates again in their final meeting of the year in December. The aforementioned Donald Trump’s tariff plans have the potential to boost growth and spike inflation, which has led to the number of 2025 rate cuts being scaled back of late.
Indeed, Fed Chair Jerome Powell commented in a speech last week that the committee don’t need to be in a rush to cut interest rates. He noted that strong economic growth will allow policymakers to take their time in deciding on when and by how much to cut interest rates. The upbeat narrative from Powell was also a factor in Dollar strength last week.
Other data was also beneficial for the Dollar. Retail Sales for October were better than hoped, with a 0.4% month-on-month growth beating estimates of a 0.3% climb. The previous month was revised up to a 0.8% increase, for extra good news. High-street spending seems to be ticking along nicely in the US.
On the jobs side of the coin, after the disappointing Non-Farm Payrolls figure two weeks ago, of just 12,000 jobs added for October, Unemployment numbers are under scrutiny. The most recent number of unemployment claims recorded a slight drop, but we will have to wait until early December for the next Non-Farm data.
In Europe, the latest ECB meeting minutes were released which showed a fractured look from their committee. The mid-October policy discussions showed a differing approach from the Bank, moving from data dependent to a more gut-feeling and pre-emptive approach to their policy.
There was some scepticism within the panel as to whether this was the right approach to take. However, in the end worries about overall economic growth was the deciding factor in what could easily be viewed as a pre-emptive cut.
The ECB seems to be wanting to get “ahead of the curve” on rate cuts, and as a result the December meeting now seems to be either a 0.25% or even 0.50% rate cut. Having been suggesting a rate cut each quarter just a couple of months ago, the ECB are now more likely putting their foot down on rate cuts to come.
Flash GDP for the bloc at least showed some growth for Q3, with 0.4% quarter-on-quarter growth. This would be the best reading for a couple of years. Sentiment on the other hand seems to be waning. The overall ZEW Economic Sentiment figure for the bloc came in well short of forecast.
Sterling-Euro traded in a narrower range last week, as illustrated in the below chart:
The week ahead:
Monday – Fed Goolsbee speech (13:30 UK time), ECB Lagarde speech (18:30), BoE Greene speech (18:30), G20 Meetings (all week),
Tuesday – Reserve Bank of Australia minutes (00:30), EU Final CPI (10:00), Canada CPI (13:30)
Wednesday – UK CPI inflation (07:00), ECB Lagarde speech (13:00), BoE Ramsden speech (16:00)
Thursday – RBA Bullock speech (08:00), US Unemployment Claims (13:30), BoE Mann speech (14:00)
Friday – UK Retail Sales (07:00), FRA/GER/EU/UK/US Manufacturing & Services PMIs (08:15-14:45), ECB Lagarde speech (08:30)
As already mentioned, the big piece of news this week will be the latest round of UK inflation data. As we know, inflation in turn leads to interest rate decisions, which is why the release is so important. A sizeable tick back up in inflation could well lead to a wait and see approach from the Bank of England, which at the moment seems likely. Such a move would be GBP-positive, with the view that UK interest rates would remain higher for longer.
Aside from the latest round of Manufacturing & Services PMI numbers on Friday, we have a scattering of speeches from policymakers throughout the week. Christine Lagarde looks to be the busiest, with a number of podium appearances. Any clues on December’s ECB policy meeting will be eagerly awaited.
Whilst the Trump rally seems to be cooling down, we can expect to see a busy period for the Dollar still. Geopolitical tensions seem to be rising again, thus we can expect plenty of volatility ahead.
As always, with movements of multiple per cent a week currently, it is important your account manager is aware of any specific requirements you may have pending. Make sure to reach out to the Aston team for anything in the pipeline.
Have a great week.
