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Audere Research

Foreign Exchange Analysis ~ 09 October 2023


GB Pound

Sterling is unable to shake off the effects of the Bank of England’s recent hold on rates amid falling inflation.


What to watch for in the short-term?

With everything going on globally at the moment, sterling is not a front-page currency. Unfortunately for sterling that is not a positive as there are a fair few currencies that market participants would rather hold on to than the pound.


The key thing for sterling in the short-term is whether the 18bps of tightening priced in for the November meeting deteriorates further given poor inflation and growth expectations. We think the BOE holds heading into Christmas and sterling dips further against its G10 counterparts.


What about the coming months? November will see the Chancellor deliver his Autumn Statement and while he has already spoke about little room for tax cuts, next year is an election year and he is a politician. Interpret that how you wish.


Calendar

Wednesday 07.00 BST | UK Services/Industrial Production


US Dollar

What happened last week?

A strong payrolls report and the desperate scenes in southern Israel have combined to allow for further dollar outperformance.


What to watch for in the short-term?

The issues in southern Israel will largely trade through oil markets given the suspicion that Hamas’s efforts are being supported by Iran. Iran’s oil exports are crucial for global demand at a time when energy inflation has finally become a little more predictable. We expect more of an effect in Europe and Asia as opposed to the Americas given oil reserves.


Within the US, data remains strong and the dollar can easily remain strong through the close of the year.


What about the coming months? Given the variables out there at the moment, the ongoing picture remains incredibly muddy but a lot would have to change for the dollar to lose its attraction.


Calendar

Wednesday 18.00 | Fed Minutes


Euro

What happened last week? The single currency has remained directionless against the pound but cannot do anything against the dollar strength. What to watch for in the short-term? The range for EURUSD sits between 1.04 and 1.06 currently and while the single currency has rebounded slightly after the strong payrolls report on Friday, it looks very susceptible to further negative pressure. Rate expectations are dead in the water currently and it may leave the ECB to further tighten policy via bond market operations as opposed to movements in financing rates. What about the coming months? The conversation around higher spending in Europe from governments ahead of elections has led to increased concerns for peripheral European debt in 2024, a previous negative for the EUR. Calendar

Wednesday 07.00 BST | German Inflation




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