Back during the pandemic, investors highlighted that the Pound followed very closely the performance of the S&P500. Classed as an 'emerging currency' since the Brexit vote, Sterling has been moving almost exactly the same as the index. The S&P 500 has gained 10% in the last month with GBP v USD gaining 4%.
When faced with a 'risk on' mood (as we are currently in), investors pull money out of their safe-havens ($ & bonds primarily) and into riskier stocks and currencies. The 'risk on' mood at the moment is thanks to the US economy performing much stronger than expected and cooling inflation much easier than anticipated.
This week could prove favourable once again for the Pound with major events out of its control. Both the $ & € are at 'favourable' levels for £ sellers and so we are expecting an influx of forward contracts again to bank the recent gains of 1%+ from last week.
Whilst the UK PMI's were good last week, the OBR's slashed economic growth forecast was not and should be highlighted. Higher interest rates are here to stay and it's almost a guarantee they will be higher for longer than other nations. BoE Governor Bailey has said today 'the economy is the worst I've ever seen'. The economy is expected to barely grow in the next 2-years which the Governor noted "It does concern me that the supply side of the economy has slowed. It does concern me a lot".
The Euro-Zone releases plenty of intriguing economic data this week that has the chance of upsetting the balance of the month so far. The € has seen around a 1% gain each week versus the $ this month and has seen the typical 'hills' scenario versus the £. Inflation is the key release, followed closely by confidence and jobs figures.
We mentioned last week that the Dollar could continue to be sold, which was the case in the end. This week is a 50-50 call as the US deliver daily risk events for the market. GDP & inflation data are obviously market movers and so ensures November's volatility remains heightened right to the end. We then end the week and start a new month with Fed Chair Powell's speech that could see plenty of market movement into the weekend.