Gaining on a weaker Dollar


Reaching highs

In the past week, Sterling has been approximately 1.0% higher against a basket of other major currencies, and hit a two-and-a-half-month high versus the US Dollar during today's Asian trading session of $1.1872. New forecasts from Morgan Stanley have suggested that interest rates could potentially peak at 4.0% in March next year before the UK witnesses rate cuts as early as 2024. In the week ahead, investors are waiting for the new Prime Minister Rishi Sunak and Finance Minister Jeremy Hunt's Budget, which is expected to include tax increases and budget cuts, to be announced on November 17th. 


Gaining on a weaker Dollar

The Euro has gained from a weaker US Dollar in recent trading, and has been able to reclaim territory above parity. Meanwhile, developments in Ukraine, where forces have managed to recapture the Russian-occupied city of Kherson, have seen President Zelenskyy hailing the significant development in the nine-month conflict as the beginning of the end of the war. In the week ahead, G20 meetings are scheduled to take place, and the European Central Bank will release its latest Financial Stability Review. ECB President Christine Lagarde will also speak on both Wednesday and Friday this week, which could influence the way the Euro trades. Recent comments from ECB Governing Council member Fabio Panetta suggested that moves to rein in inflation should be cautious, and adverse economic outcomes should be evaluated. 


Cooling inflation

Last week, US inflation data showed that consumer prices rose slower than economists had expected in October on the year, at 7.7%. The recent reading showing a cooling in inflation has caused markets to reprice how the central bank may act in upcoming meetings, which has impacted the Dollar. However, even with the slowdown, the Consumer Price Index remains significantly higher than the Fed's target rate of 2.0%, and the cost of living continues to remain challenging for many. Markets are now predicting an 80% probability of a smaller interest rate increase at upcoming meetings, following on from the 0.75% raises that the Fed has announced in the last four months. In the week ahead, Producer Price Inflation reports, and Retail Sales for October are events to look out for and may influence the US Dollar.


'Very committed' 

The Pound softened against both Australian and New Zealand Dollars in last week's trading. The Reserve Bank of Australia has announced that it's 'very committed' to containing inflation. The central bank has differed from others, by slowing down the pace of rate hikes to encourage economic growth and keep unemployment from rising too significantly. Deputy Governor Michele Bullock said: 'Don't doubt our resolve that if we get some particular bad news on inflation, and if all the reasons we think we are different on wages turns out we're not, then don't doubt our resolve to increase interest rates quite quickly.' Meanwhile, close neighbour, the Reserve Bank of New Zealand, published its review of monetary policy decisions for 2017-2022. The review said that monetary easing during Covid was warranted, and the worst scenarios were negated. However, the review also published a quote by Chief Economist Paul Conway, who said: 'The current heightened level of inflation could have been lessened at the margin by an earlier tightening in monetary policy in 2021.

In Tuesday's Trans-Tasman trading session, the RBA will release its monetary policy meeting minutes, ahead of Australian wage data on Wednesday. Later in the week, Australian Unemployment Rate data will be released. 


Tentative to discuss hikes 

Sterling gained against the Canadian Dollar in last week's trading. Bank of Canada Governor Tiff Macklem's speech last Thursday highlighted how the central bank is continuing to focus on measures of core inflation and how the low Canadian unemployment rate isn't sustainable, as it's contributing towards higher consumer prices. Last month, the central bank hiked interest rates for the sixth consecutive time this year, with economists still expecting a few further hikes to come. However, the bank seems to be cautious about discussing how significant future hikes may be, saying it could be a more considerable hike, or return to a more 'normal' pace. Inflation came in at 6.9% in September, a far cry away from the central bank's 2.0% target, but has been gradually falling since hitting highs of 8.1% in June. This week, Canadian inflation data will be out on Wednesday, which could create some movement for the Canadian Dollar. 

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