This Week: EURGBP is under spotlight

• BoE's hawkish stance signals gradual rate cuts
   
• ECB expected to cut rates by 25bps soon
   
• Key support for EURGBP at 0.8339 from August 2022
   
• UK CPI and wage growth data to impact GBP
   
• US retail sales show resilience amid soft landing

This well-known currency pair has been in thrall to the respective central bank policies and interest rate expectations in recent months.

The BoE delivered a “hawkish” rate cut in early August. That meant any further policy easing by UK rate setters would be very gradual and measured.
 

The outlook was presumed to be similar for the ECB.

But the economic picture has diverged since, with falling inflation and depressing growth in the eurozone pushing the cross to long-term support.

Prices briefly rose on some dovish comments from Bank of England Governor Bailey. But the low from August 2022 at 0.8339 is a key level for markets.

If we lose this, next support is 0.8249, the bottom from April 2022 with the March 2022 low at 0.8202.

Bulls looking for a rebound will have to decisively get above the 21-day simple moving average at 0.8370 and the 100-day simple moving average at 0.8445.

Events Watchlist:
 

• Wednesday, October 16th: UK CPI

Headline UK inflation has come down to the Bank of England’s 2% target in recent months.

But policymakers focus on core and especially services CPI figures to determine interest rates. The latter has been stickier than elsewhere, while growth has been surprisingly strong in the first half of 2024.

The UK releases important wage growth data on Tuesday, October 15, which will also be a focus for markets.

The next BoE rate cut isn’t likely until November, so hotter data could push that further out and boost GBP.

• Thursday, October 17th: ECB Meeting

Money markets fully expect the ECB to cut rates by 25bps at this meeting.

They have actually baked in a total of four back-to-back quarter point moves from October through to March next year.

Falling inflation and downside risks to growth have impacted interest rate pricing.

However, this pace of moves would be in sharp contrast to the mood at the ECB’s recent September meeting when President Lagarde and Co set the stage for a quarterly pace of cuts.

A less dovish tone by her could help the euro which has support around 1.09.

• Thursday, October 17th: US Retail Sales

The soft landing appears to be on track in the US. The surprise 50bps rate cut by the Fed was a pre-emptive strike to cushion any impact from a deteriorating labour market.

This has helped consumer spending remain resilient, while inflation is no longer a major concern, having fallen from a peak of 9.1% close to the Fed’s 2% target.

In fact, the still-solid jobs picture means retail sales should also remain positive. This should underpin support for the dollar and stocks.

Here’s a comprehensive list of other key economic data and events due this week:

Monday, 14th October

• CN50: China trade
   
• US500: Fed Governor Christopher Waller speech
   

Tuesday, 15th October

• CAD: Canada CPI, existing home sales
   
• EU50: Eurozone industrial production, Germany ZEW survey
   
• JP225: Japan industrial production
   
• UK100: UK jobless claims, unemployment
   
• US500: Goldman Sachs, Bank of America, Citigroup earnings
   

Wednesday, 16th October

• NZD: New Zealand CPI
   
• ZAR: South Africa retail sales
   
• UK100: UK CPI
   
• NETH25: ASML earnings
   
• US500: Morgan Stanley earnings
   

Thursday, 17th October

• AU200: Australia unemployment
   
• EU50: Eurozone CPI, ECB rate decision
   
• JP225: Japan tertiary index, trade
   
• SG20: Singapore trade
   
• NAS100: US retail sales, jobless claims, industrial production, Netflix earnings
   
• TWN: Taiwan Semiconductor Manufacturing Company (TSMC) earnings
   

Friday, 18th October  

• CN50: China GDP, retail sales, industrial production, home prices
   
• JP225: Japan CPI
   
• UK100: UK retail sales