Well we promised a volatile week and that's exactly what we got last time out. The market received what it was hoping for from the BoE with a vote of 6-3 to keep UK interest rates on hold. This was a much firmer stance on monetary policy than the previous month and so takes some uncertainty away from the central banks near-term plans, which in-turn keeps £ stable.
The volatility then, came from the US towards the back-end of the week after it's interest rate decision and labour market release (more of that below). It was some surge that was realised and the wave is still being ridden into today and maybe beyond.
The selling of the Dollar by traders and investors meant that £-$ achieved it's best weekly gain this year. The same can be said by all emerging currencies versus the USD. A 'risk-on' mood has been established, which has seen £-€ rise as-well to a 3-week high with cable trading at a 7-week high now.
Both represent favourable times to exchange, especially as it's likely the $ sell-off has reached 'overbought' territory and no downgrades in USD forecasts are expected on the back of what has happened.
Last week's collective inflation & GDP data arrived pretty much as forecast and so the Euro escaped any volatility from these heavyweight releases. However, the US numbers did mean that €-$ gained over 1%, but €-£ also lost 1% due to the nature of the 'risk-on' mood and the Euro's role as a stable currency.
So what did happen over in the US?
Firstly, the Fed left interest rates at 5.5% (no surprise) and maintained its guidance to raise rates if the data warrants it. However, the meeting was more dovish than hawkish which left the Dollar softer after the session ended. Money markets had still priced in a small rate rise before the year was out, but this quickly vanished by the time Fed Chair Powell finished speaking.
On Friday, it was US jobs data that sparked a market rout. The unemployment rate rose to 3.9% from 3.8% unexpectedly and hourly earnings rose marginally but more crucially below consensus at 0.2%. The nail in the coffin was 150K jobs were created in October, less than the 180K forecast, which was already markedly down from September's 297K.
An overall very soft report meant that markets got the green light to prepare for a US interest rate cut (negative for a currency). Labour numbers are always the last thing to turn in an economic cycle and these numbers are clear signs that is now happening.
But beware, we may still be 6-months away from this happening and during that time the UK will slowly be following suit. So this is no correction for the Dollar, near and long term still point firmly at USD strength. As always in this market, there will be times to buy and this is one of them.