For anyone new to the market, Sterling has had a 'tough' couple of weeks. Overall 2% has been lost across the board in that time after the latest inflation figures show that inflation is falling faster than expected. This is mainly due to high interest rates, which has also been the reason for GBP's 2023 out-performance so far.
This week, the Pound sits on the sideline as the EU & US taking centre stage and so that means its value will be determined by events elsewhere. Current rates are still favourable even with the recent dip, but consensus has certainly changed from £ positive to muddy at best
This morning, both the EU & UK released rather poor PMI data (expected) with the market reacting in standard downgrade fashion. The all-important services sector arrived much lower than forecast and just about in growth territory. Manufacturing remains in contraction and the property market is now putting a fresh drag on business and consumer spending. £-€ has support at 1.15 mid-market with the £-$ supported at 1.27, but both will be tested this week in what looks like a testing week again for Sterling.
The Euro-Zone produced some rough PMI data this morning which weakened the €. France's services and manufacturing numbers came in at 29-month and 38-month lows. Germany followed with confirmation that its economy contracted in the month after its manufacturing figure nosedived and pretty much the whole report on jobs and business activity was terrible.
Looking ahead, the ECB should be raising interest rates by 25bp that should see a small bump in € value and more so if there is any forward guidance on further hikes. Friday's GDP & inflation releases are a bit harder to call and so a risk event both days if you are involved with either buying or selling EUR.
This weeks Fed interest rate decision will see market volatility. If a 25bp hike arrives, USD will gain strength. If it doesn't, USD will lose value. The Dollar has struggled this month so far, but last week saw a fightback and that may continue through the week.