GBP appears to be facing renewed downward pressure against the EUR, following a brief seven-day recovery that was reversed toward the end of the previous week. The upcoming days are notable for the release of UK wage and inflation data, which is expected to generate interest and potential market movement.
On Tuesday, the focus will be on the release of UK labour market statistics. The market will closely react to earnings and changes in employment levels, as these indicators provide insights into the potential trajectory of UK inflation in the months ahead. Average Weekly Earnings (excluding bonuses) are projected to have increased by 7.8% on an annual basis, consistent with the previous month's figure. The market anticipates a headline unemployment rate of 4.3% for August, unchanged from July but higher than May's 4.0% and the Bank of England's Q3 forecast of 4.1%.
Wednesday is set to bring the crucial inflation figures for September. Market expectations are for headline inflation to decrease to 6.5% year-on-year from the previous 6.7%. However, the month-on-month reading is expected to rise from 0.3% to 0.4%, primarily due to increasing fuel prices. A softer-than-expected reading could trigger a repeat of the September selloff, placing pressure on the lower end of range, and pressure at the 0.87p level GBP/EUR 1.1494.
Friday will see the release of GfK consumer confidence figures and retail sales. While these releases will be of interest, they are unlikely to exert a significant influence on the market, particularly in light of the substantial signals provided by the wage and inflation data just days earlier.
In the Eurozone, German sentiment will be scrutinized on Tuesday at 10:00 BST. Market participants will be keen to gauge the rating of Germany's prospects, especially given the recent downturn in economic activity, which has led economists at Deutsche Bank to predict the possibility of a double-dip recession.
On Wednesday, the Eurozone's inflation figures will receive final confirmation. As this is an update to the preliminary release, it is not expected to cause major market turbulence.
Recent indications suggest that the European Central Bank (ECB) is inclined to halt its interest rate hiking cycle. Governing Council members have emphasized the importance of Q1 2024 wage data for informing future policy decisions. This pause in interest rates is expected to limit the Euro's support through the interest rate channel, particularly when compared to currencies like the USD and GBP, whose central banks may consider further interest rate hikes in 2023.
Market analysts will also be closely monitoring geopolitical events in Israel. The recent eruption of violence in the region has prompted a shift in investor attention towards safe-haven assets. Heightened geopolitical uncertainty typically leads to increased demand for assets like gold and the USD, while concurrently strengthening the appeal of US Treasuries, which have recently faced considerable selling pressure.
