- US CPI released last week surprised the market to the downside and other data showing household spending has lost momentum, boosted bets on the Federal Reserve cutting rates early 2024 (which many economists consider a policy error). Equity and bond markets rallied, and the US Dollar continued to lose. The US Dollar looks set to start the week weaker across the board, with the US Dollar Index losing almost 2% in 5 days.
- Investors are strongly convinced the Fed is finished with their tightening cycle and that inflation will keep falling towards the central bank goal without a great increase in unemployment.
- Key data/events to watch this week in the US: FOMC Minutes (Tue.), likely to show the dovish tilt that the current FOMC holds; Initial Jobless Claims (Wed.); University of Michigan Sentiment for November (Final) (Wed.) which is due to remain unchanged where year-ahead inflation expectations rise to 4.4% from 4.2% despite lower gasoline prices.
- In Europe, PMI Surveys will be closely watched for any recession signals with the UK expected to experience a downturn during the winter and the euro-area to dodge one.
- Key data/events to watch this week in the UK: UK Autumn Statement (Wed.), where UK Chancellor of the Exchequer Jeremy Hunt will have little scope to ease fiscal policy, so there will be little for the markets in terms of inflation and growth outlook; UK Flash PMIs (Thu.) expected to remain below the 50.0 level, which represents expansion.
- Key data/events to watch this week in the Euro-area: Euro-area PMIs (Thu.) are estimated to tick higher across Manufacturing, Services, and the Composite from their prior levels; ECB Monetary Policy Account (Thu.) will be closely monitored for any support among policymakers for further tightening.
- Both the Euro and Sterling rallied against the greenback last week, and today we are higher. EUR/USD gains 0.07% trading comfortably around 1.0920 while GBP/USD gains 0.16%, trading at 1.2480, slowly approaching the 1.25 level.
- EUR/GBP grinds higher and just reflects what the market is pricing for both regions on the PMIs due to be released this week. We are currently trading at 0.8750 with the next resistance being at 0.8760, where price action was rejected twice last week.
