Economic Outlook and Exchange Rates in the UK, Eurozone, and the US.

GBP/Sterling: In the UK, upcoming inflation data is expected to show a decrease in both headline and core inflation. However, there’s a concern that recent surges in oil prices could lead to higher-than-expected headline inflation, which includes volatile items like food and fuel. The Bank of England (BoE) is also closely watching the rate at which average earnings are increasing, with the latest data indicating a 3-month average earnings growth of 8.5% year-on-year. Despite the BoE signaling a pause in interest rates at current levels, they hope to see a further decrease in general prices, with some optimism stemming from weaker job data, which is seen as contributing to bringing inflation closer to the 2% target.

EUR/Euro: The euro saw a modest appreciation against the US dollar, but gains were limited due to caution in the foreign exchange market. The decision to postpone an invasion of the Gaza Strip by Israel has helped stabilize the mood to some extent. However, the Middle East remains highly volatile, especially following recent Hamas terrorist attacks. Geopolitical tensions in the region are creating uncertainty, and any deterioration in the Israel-Palestine conflict could negatively impact riskier currencies. This situation may lead to a more favorable environment for the US dollar in the short term.

USD/Dollar: The US dollar is generally considered a safe-haven asset, performing well in times of increased uncertainty and financial stress. Recent statements, such as those made by Harker, suggest that the Federal Reserve is cautious about raising interest rates further, considering the challenges faced by many small US businesses in coping with the tightening measures implemented to date. Harker highlighted that small firms are struggling to access capital, which has implications for the Fed’s policy decisions.

Economic Calendar