Sterling ended the week on a pretty negative note following weak UK GDP data with GBPEUR falling to 1.20, and GBPUSD falling to 1.26. The biggest concern with the data was that the services sector in the UK showed no growth in October, the same as September, which has led many to blame the most recent budget on negative sentiment in the UK economy. There is clearly a slowdown happening in the UK economy, but how long this goes on for is the main question- we will have to keep an eye on UK figures moving forward to see if the trend shifts at all or remains the same, but for now I still believe 2025 should be another good year for Sterling.
Looking at this week, which is really the last week of good liquidity in the market until 2025, so this is most probably my last report of the year (unless something crazy happens)- we have a few events that are noteworthy and that could give us some direction before going into the new year. We begin on Monday with flash PMI’s from Europe, the UK and the U.S- as these are estimates we won’t be putting too much weight on them, but they are always a good indicator of what is to come- the UK expectations are positive, as are Europe’s and the U.S- so I do not expect to see this have a massive impact on the market.
On Tuesday we have UK unemployment numbers alongside average earnings- unemployment numbers are expected to remain at 4.3%, providing we don’t see anything worse, then Sterling should remain unaffected, this will then be followed by EU balance of trade data which is expected lower at 11.9B, which will probably weaken the Euro off slightly as this is a big fall from 12.5B last month. We then have U.S retail sales numbers which are expected higher so this should be good for USD and risk assets as a whole.
On Wednesday we begin the day with both UK & EU inflation data, with the UK’s expected to creep up again to 3.6%, this is widely expected so it shouldn’t be a shock to the market, but expect negative headlines as it does show that costs for energy and food are higher again which is probably not welcome news to the public. EU inflation is expected to remain the same as last month at 2.7%. The main event on Wednesday is the Fed interest rate decision where we are expecting a 25bps rate cut from the Fed, this is pretty priced in so I do not expect to see fireworks until the press conference, but generally this should be positive for risk assets going forward.
On Thursday we have the Bank of England meeting where currently we are not expecting any rate cuts, however, after last week’s GDP and potentially after the inflation data, there is a chance we see a surprise cut, so do not rule this possibility out for Thursday, if we do see this, then it will be negative for Sterling- no cut may be short term positive but I think the BoE will have to act fast to assist the UK economy either way, so if we don’t see a cut this week, then we will early 2025.
GBP/EUR 1.2018 GBP/USD 1.2637 GBP/AED 4.6433
GBP/AUD 1.9843 GBP/CHF 1.1256 GBP/CAD 1.7985
GBP/NZD 2.1859 EUR/USD 1.0499 GBP/ZAR 22.5916