Weekly round-up and a look at the week ahead for EUR, GBP, and USD.

USD

As the year draws to a close, markets are already looking ahead to what path the Federal Reserve are likely to take and the overall theme is one of rate cuts. Despite Jay Powell on Friday looking to ease the markets view that the fight against inflation is over, traders are boosting bets that the central bank could cut interest rates as early as March 2024. The Fed meet for the final time this year next week and markets have almost all but brushed over the meeting and concentrating efforts on what 2024 has in store. Despite Powell’s comments, the policy-sensitive two-year Treasury note dropped to a five-month low indicating investors largely ignored Powell’s comments, further supported by gold reaching an all-time high, surpassing the intraday peak in August 2020.

A bumper week of employment data lies ahead for the greenback. Data last week surpassed forecasts as Core Personal Consumption Expenditures fell below estimates and GDP figures displayed expansion of the US economy. Key releases for the dollar this week include Nonfarm Payrolls, Unemployment Rate, Average Hourly Earnings, ADP Employment Change and ISM Services PMI. The weeks data is heavily focused on the labour market which alongside inflation is a key metric for the Fed’s future guidance.

EUR

The bloc are current engrossed in a budget crisis just a week ahead of the summit in Brussels, aid to Ukraine has been used as a political bargaining chip as Brussels previously indicated €50bn would be conjured up for Ukrainian aid. The budget stalemate comes weeks after the German three-party coalition was in disarray after the country’s constitutional court ruled against the proposed plan of Chancellor Olaf Scholz leaving other member states jostling for funds from Brussels.

Despite the political discord the bloc’s economy appears to be in a more harmonious position, inflation for November released last week dropped to 2.4 percent, down from 2.9 percent in October and reflecting the slowest annual place since July 2021. Similar to the Fed, traders are now betting on the ECB cutting interest rates as early as April next year. This week will provide further evidence on the economic performance as Eurozone GDP, Retail Sales and German CPI are released throughout the week.

GBP

Looming in the shadows of late the UK has been rather underwhelming in both economic performance and the pounds appeal internationally. The conversation on the BoE’s effectiveness trudges on and the lack of political conviction still at the forefront heading in an election year. A parliamentary report just released highlights the increasing budget deficit the UK faces at present, the reports finding suggest the Ministry of Defence will have a shortfall in its budget for equipment and weapons of 16.9bn over the next 10 years, which could potentially rise to 29.8bn – the watchdog has said increased costs in nuclear and naval programmes have been the main causes for the shortfall.

Sterling may be in for a wild ride this week against its G3 counterparts with minimal data releases out UK wise, the Financial Stability Report and BRC Like-for-Like Retail Sales will be the notable releases for the week in what otherwise is a subdued docket for the pound.

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