Monthly Currency Report – December 2023

Friday 15th December – There was an initial surge in the Pound (GBP) driven by the UK’s service sector PMI surpassing predictions. Despite this, the Pound couldn’t sustain its momentum against certain strong currencies due to a deeper decline in UK factory activity, curbing its upward trend.

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On the same day, the Euro (EUR) experienced a decline as the Eurozone’s PMI figures fell short of expectations. These results indicated a further slowdown in the private sector, sparking concerns about a potential recession in the bloc.

Meanwhile, the US Dollar (USD) soared following bullish remarks by Federal Reserve policymaker John Williams. His warnings about market overreactions to the Fed’s recent rate decision, perceived as dovish, led to a surge in the Dollar’s value. Williams also pushed back against speculations regarding rate cuts.

Thursday 14th December

The Pound (GBP) surged as the Bank of England (BoE) adopted a hawkish stance during its final interest rate decision of 2023. Despite keeping rates unchanged as anticipated, policymakers vehemently opposed speculations regarding future rate cuts.

Simultaneously, the European Central Bank (ECB) unveiled its rate decision. ECB President Christine Lagarde affirmed no talks on rate reductions, bolstering the Euro (EUR). Additionally, the Euro gained traction due to its strong inverse relationship with the US Dollar (USD), which remained feeble post the Federal Reserve’s recent decision.

Meanwhile, the US Dollar struggled following the Federal Reserve’s dovish rate decision the day before. An unforeseen resurgence in US retail sales during the afternoon exacerbated the USD’s losses, instilling optimism in the markets and further denting the safe-haven status of the ‘Greenback’.

Wednesday 13th December

It was a challenging day for the Pound (GBP) as unexpected negative UK GDP figures revealed a 0.3% contraction in October. This unforeseen downturn sparked concerns about the UK’s economic outlook.

Similarly, the Euro (EUR) grappled against robust currencies due to a larger-than-anticipated plunge in Eurozone industrial production, witnessing a 0.7% decline in October. This exacerbated worries about the Eurozone’s economic stability.

Conversely, the US Dollar (USD) took a nosedive following Federal Reserve Chair Jerome Powell’s unexpectedly dovish stance post the central bank’s rate decision. Powell’s statements intensified speculations of a probable rate cut in March.

Tuesday 12th December

The Pound (GBP) faced volatility yesterday after a larger-than-forecast cooldown in UK wage growth impacted Bank of England (BoE) interest rate cut expectations. However, the British unemployment rate surprised to the upside, holding steady at 4.2%. This cushioned the Pound’s downside.

The Euro (EUR) rallied during yesterday’s session after Germany’s latest economic sentiment index beat forecasts. December’s index unexpectedly rose to 12.8 – its highest reading since March – boosting optimism around the health of the Eurozone’s largest economy.

The safe-haven US Dollar (USD) initially weakened yesterday amid a risk-on market mood. However, the ‘Greenback’ recovered during the American trading hours after signs of sticky US inflation boosted USD in the run-up to the Federal Reserve’s interest rate decision.

Monday 11th December

The Pound (GBP) moved higher during yesterday’s European session before trimming its gains against some of its peers during the US trading hours. The volatility in Sterling came amid a lack of UK economic data and ahead of a busy week, which kicked off with this morning’s labour market report.

The Euro (EUR) weakened against many of its peers yesterday, hitting a fresh three-month low against the Pound, as investors repositioned ahead of the European Central Bank (ECB) meeting later in the week. With signs of a struggling Eurozone economy and inflation nearing the ECB’s target, markets are speculating that the bank may strike a dovish tone when it announces its policy decision on Thursday.

The US Dollar (USD) traded without a clear direction yesterday, with USD investors waiting on the sidelines ahead of an eventful week. In addition, an uncertain market mood added to the safe-haven currency’s mixed movement.

Friday 8th December

On Friday, the Pound (GBP) faced challenges drumming up support as UK economic data remained stagnant. Adding to the Pound’s struggles, market sentiment worsened through the latter part of the session.

The Euro (EUR) saw a sideways trend on Friday. Pressure initially stemmed from Germany’s consumer price index, revealing a marked slowdown in November’s final figures. As the week closed, EUR rates remained subdued due to its negative correlation with the US Dollar.

The US Dollar (USD) surged toward the week’s end following an unexpected drop in domestic unemployment revealed by the latest US payrolls report. The revelation prompted a reassessment of Federal Reserve interest rate expectations, with odds of a March rate cut dipping below 50%.

Thursday 7th December

Thursday, the Pound (GBP) experienced fluctuations without a clear trend, exposed to volatility due to a lack of UK economic data. Although GBP traded widely during the day, it managed a slight overall uptick against weaker currencies.

The Euro (EUR) also displayed mixed performance, slightly outperforming the Pound despite an unforeseen dip in German industrial production. EUR might have found support in its inverse relationship with the US Dollar, which retreated during the session.

Following multi-week highs overnight, the US Dollar gradually declined through the European session. USD seemed initially affected by profit-taking, with an increase in US jobless claims compounding its losses later in the day, indicating a potential slowdown in the US labour market.

Wednesday 6th December

Wednesday saw the Pound (GBP) struggle after remarks from Bank of England Governor Andrew Bailey, who adopted a more cautious tone regarding interest rates, suggesting they would likely remain stable for an extended period.

The Euro (EUR) stumbled due to an unexpected downturn in German factory orders, plummeting by 3.7% in October instead of the expected 0.2% rise, raising concerns about the Eurozone’s largest economy’s manufacturing sector.

The US Dollar (USD) maintained a steady but sideways trajectory amid underwhelming US jobs data, as the ADP employment change figure for November fell short of predictions, signalling a slower pace of job creation. However, investors refrained from hasty moves ahead of the more impactful non-farm payrolls report.

Tuesday 5th December

On Tuesday, the Pound (GBP) remained subdued despite the UK’s final PMI data showcasing a larger-than-expected recovery in service sector activity. While this buoyed Sterling against weaker peers, it couldn’t prevent losses against stronger currencies.

The Euro (EUR) weakened against several counterparts following dovish remarks from ECB rate-setter Isabel Schnabel, suggesting another rate hike was improbable. This shift in tone heightened expectations of a rate cut.

The safe-haven US Dollar (USD) strengthened amidst a risk-averse market sentiment and a stronger-than-forecast services PMI. Although a substantial drop in job openings capped USD gains, it continued to ascend.

Monday 4th December

Monday saw the Pound (GBP) without a clear direction due to limited UK economic data, leaving the currency vulnerable to market sentiment. This led to GBP stumbling against safer currencies but recovering against riskier counterparts.

The Euro (EUR) also remained subdued with mixed German trade data limiting its potential. While the country’s trade surplus expanded, exports unexpectedly contracted. A risk-off environment favoured the safer EUR, yet its strong inverse correlation with the rallying US Dollar offset gains.

The US Dollar (USD) gained strength amidst risk aversion in the market, bolstering the appeal of the safe-haven currency. A larger-than-expected downturn in US factory orders added to USD gains, contributing to its strengthening trend.

Currency Ranges for the month:

GBP/USD: Low:   High:

GBP/EUR: Low:  High:

EUR/USD: Low:  High:

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