15 October 2024

GBP

The coming days will see a series of market events that will could inject some volatility into what was a very quiet last week.

On Tuesday, the UK government will release estimates of employment, unemployment, inactivity, average weekly earnings, vacancies and other labour market related statistics for the UK.

In the last three months to August, gross pay without bonuses slipped slightly from 5.1% to 5%. This is in spite of the mixed GDP growth the UK experienced in the summer, which led to only a slow return to positive growth in August. Unemployment is expected to remain unchanged at 4.1%, while the claimant count is expected to drop from 23,000 to 20,000.

There will also be a series of inflation readings this week, and these could lead to more volatility. Analysts do not anticipate much of a shift in the UK's CPI reading on Wednesday, with perhaps a marginal 0.1% drop to 3.5%. The Bank of England would probably prefer greater movement than that if it is looking at more aggressive rate cuts over the coming months. But Friday’s Retail Sales figures will likely support rate cuts with another predicted drop from 1% to -0.3%.

EUR

The main talking point of the week will be the expectation of the European Central Bank cutting interest rates on Thursday. With inflation now below target, ECB president Christine Lagarde and French central bank chief François Villeroy de Galhau have both signalled the likelihood of a cut in recent weeks. In its monetary policy meeting on 17 October, the ECB is expected to reduce the key interest rate by another 0.25% to 3.25%. Core CPI for Europe is likely to remain unchanged at 2.7%.

As a likely result of the ECB's response to slowing inflation in the Eurozone, which at 1.8% is the lowest since April 2021, the EUR weakened to a two-month low.

Goldman Sachs has suggested that the EUR should now be considered the preferred funding currency over the traditionally safer CHF and JPY, given current market conditions and expectations for currency performance. The company’s baseline forecasts predict higher equities, stable yields, and reduced rate volatility, which could lead to renewed weakness in the Dollar and cyclical outperformance for both G10 and emerging market currencies.

USD

The Federal Reserve system and some American banks will be closed today to commemorate Columbus Day or Indigenous Peoples’ Day. Meanwhile, Canada celebrates Thanksgiving. Both these annual events take place on the second Monday in October.

Also today, Federal Reserve Bank of Minneapolis President Neel Kashkari will speak at the Central Bank of Argentina’s Money and Banking Conference: “Fiscal Deficits, Monetary Policy and Inflation". He will be followed by the Fed’s Board Governor Christopher Waller, who will speak about the economic outlook. Late afternoon, Neel Kashkari will also deliver a lecture on "The Current State of U.S. Monetary Policy". No doubt they will both offer their views, but will they give any clues as to whether there will be one rate cut or two later in the year?

Retail sales in the United States grew by 0.7% in September from the previous month. This is slightly below August’s revised 0.8% gain and marks the sixth-straight month of growth. The figure factors in September’s 0.4% rise in consumer prices, inflation-

On the Canadian front, CPI is expected to increase by 0.1% to 2.1% on Wednesday, while New Zealand is expecting a sharp drop from 3.3% to 2.3%. Chinese Q3 GDP fell from 4.7%. to 4.6%. This was slightly lower than the forecast figure, but good news for overall global markets, which are unsettled when economically significant countries face tough times.

This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.