Friday seems such a long time ago as we return from the bank holiday weekend, but nonetheless worth mentioning what happened at Jackson Hole. Fed Powell failed to outline anything in addition to previous comments in that the Fed remains committed to bringing inflation down to 2%, but the Fed will tread carefully on its path to do so. Money markets bet on a pause in September, followed by one final hike in November. ECB Lagarde avoided signalling intentions for September's meeting, and repeated that the ECB will be data dependent. Overall over this news it was USD that gained, with the USD index now at the strongest levels since May.
Since the weekend, markets have taken on a risk-on tone causing USD to retreat from the gains on Friday.
* Daily move - against G10 rates at 7:30am, 29.08.23
** Indicative rates - interbank rates at 7:30am, 29.08.23
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We have a light UK data calendar this week, suggesting that GBP moves will come from external factors. August's inflation numbers from Europe will be one of these external factors, with data due to be released on Thursday. Headline inflation is expected to drop from 5.3% to 5.1%, and the core number expected to drop to 5.3% from 5.5%. US job numbers are on tap this week starting with the JOLTS job opening numbers today, followed by ADP numbers on Wednesday, and nonfarm payrolls on Friday expected to show a decline in job additions from 187,000 to 170,000. Average earnings are expected to ease to 4.3% from 4.4%, and the unemployment rate is expected to remain at 3.5%.
The USD has had a solid run of late with lower risk appetite, and the idea that Fed rates will be higher for longer supporting the move. We saw a key support level on GBPUSD broken on Friday, opening up the idea for further declines on GBPUSD. However markets may want to wait for Friday's job numbers for confirmation before pushing USD stronger.
We saw a break through the June 30th support on GBPUSD, which brings about concerns on the pair, particularly for our USD buyers out there. Key data point this week will be US job numbers on Friday, which could provide the catalyst for additional drops on GBPUSD. Until then, markets may well take a breather giving clients who need to buy USD a good opportunity before the potential for further weakness on the pair.
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