Last week was a mixed one for the pound, slipping 1% against the US dollar but gaining 1% against the euro. Citigroup’s update to their UK inflation forecast delivered good news, predicting UK inflation to fall to 2.3% in nine months. However, Bank of England Governor Bailey dampened the inflation hawks and the pound, cautioning against expecting rates to move in either direction. This Friday, the release of the UK GDP, Manufacturing Production and the Goods Trade Balance could provide direction.
The euro fell against the pound as the German CPI hit 9.3% annually. Eurozone Core CPI was expected to be steady at 5.3% but jumped to 5.6%, providing further reasoning for a more hawkish ECB. President Lagarde said that it was “impossible” to say how high rates need to go, more support for a potentially bullish euro. Eurozone Retail Sales were released Tuesday, and GDP is out on Wednesday.
The US dollar traded within its recent ranges following a quiet data week. Fed’s Waller said the FOMC might need to raise rates beyond December’s expected central view. Fed Chair Powell testifies twice to Congress this week, and Non-Farm Payrolls are released on Friday. After a strong print last month, the number of new jobs added to the market could exceed this month’s expected 215k. This could force both GBPUSD and EURUSD lower than the current range. The Fed is in a tricky situation if inflation rebounds higher just as they were expected to hit their terminal rate.