Euro (EUR) Trades Mixes as Inflation Exceeds Forecasts
EUR/GBP: Up from £0.86 to £0.87
EUR/USD: Up from $0.98 to $0.99
The Euro (EUR) traded in a mixed range against its peers last night, alternately buoyed and pressured by economic and external factors.
At the beginning of the week, a higher-than-expected inflation release weighed upon the single currency, triggering concerns about slowing economic growth in the bloc. Rather than forecasting hawkish rate hikes from the European Central Bank (ECB), markets fretted over the cost of living.
Midweek, the Euro managed to claw back some gains despite a greater-than-expected contraction in October’s manufacturing activity. EUR sustained its upward trend into Thursday as unemployment in the Euro area dropped to a record low of 6.6%.
On Friday, the single currency made an astonishing recovery as German factory orders shrunk by a significant 4% in September: far worse than the 0.5% forecast. Furthermore, the Eurozone’s services PMI confirmed a deeper contraction in activity.
Nevertheless, hawkish comments from the ECB’s President Christine Lagarde helped to support EUR against all odds.
Pound Depressed by Downbeat BoE Outlook
GBP/EUR: Down from €1.16 to €1.14
GBP/USD: Down from $1.14 to $1.13
The Pound (GBP) faced several headwinds last week as borrowing data disappointed, food prices soared and the Bank of England (BoE) forecast a prolonged recession in the UK.
On Monday, consumer credit data showed that borrowing fell to £0.745bn in September from £1.215bn the previous month. The data triggered bearish trading on signs that the UK economy is slowing down.
On Tuesday, October’s finalised manufacturing PMI printed above expectations and markets were optimistic that the new Prime Minister may restore fiscal orthodoxy, temporarily shrugging off the threat of tax hikes.
Yet Wednesday brought fresh headwinds as food inflation was revealed to have risen by 11.6% in the year to October.
On Thursday, a downbeat forecast from the Bank of England compounded GBP losses as despite raising interest rates by 75bps as expected, the central bank warned of a bleak outlook ahead.
Sterling continued to weaken on Friday as investors contemplating the prospect of one of the longest recessions since records began.
US Dollar (USD) Supported by Hawkish Federal Reserve
USD/GBP: Unchanged at £0.87
USD/EUR: Down from €1.01 to €1.00
The US Dollar (USD) was buoyed last week as a hawkish policy outlook from the Federal Reserve sparked optimism.
Despite getting off to a slow start, Wednesday’s interest rate decision and press conference were able to allay concerns sparked earlier in the week by a greater-than-expected contraction in October’s Chicago PMI and the Dallas Fed’s manufacturing index.
Fed Chairman Jerome Powell indicated that the central bank would continue to tighten monetary policy, stating:
‘It is very premature to be thinking about pausing. People when they hear ‘lags’ think about a pause. It is very premature, in my view, to think about or be talking about pausing our rate hikes. We have a ways to go.’
A general risk-on mood capped USD gains somewhat, alongside a higher-than-expected unemployment rate in October and a fall in last month’s non-manufacturing PMI.
Guy Berger, principal economist at LinkedIn, commented: ‘The labour market is basically OK, but it does seem to be slowing.’