RedFX Update: UK data back on the cards this week

As interest rates now look set to be ‘on hold’ and ‘higher for longer’ in Europe, the UK and USA, the market will focus upon data. This week we have significant data from the UK. This follows Governor Bailey’s remarks that the rate decisions will continue to be tight.

GBP: Some good news this morning as The EY Item Club said the UK will avoid a recession despite the impact of the Bank of England’s interest rate hikes. 

In its new Autumn forecast, the EY Item Club predicted the UK economy would grow 0.6 per cent over the course of 2023, up from 0.4 per cent growth projected in July. This is mainly due to a resilient labour force and energy prices declining (last month saw inflation fall from 6.8% to 6.7%). 

GBP/USD fell at the end of last week as US data showed inflation remaining elevated – GBP/USD just under 1.2200 and failing to break 1.2350 last week. GBP/EUR is failing to find direction, bobbling around 1.1550. This week’s data should give momentum.

USA: Fed Chairman Powell speaks on Thursday as the USD holds at high levels as US 10yr yields remain elevated. The USD saw a flight to safety due to the new conflict and will remain volatile – reacting to major events in the conflict. EUR/USD sits at 1.0550 – low levels not seen since spring 2023.

EUR: We know that the ECB is now taking a neutral stance on rates, but Wednesday’s speech from President Lagarde will be closely watched for future indicators. With debt levels in Italy France and Spain at very high levels, the cost of financing that debt remains the biggest risk to the ECB and the single currency