GBP

After an eventful week, GBP/USD declined slightly overall, with the pound slipping by around 0.3% by last Friday's close. Although the broader pound has fared slightly better, with GBP/EUR rising beyond 1.1500 before moderating and GBP/CAD rising by almost 1% throughout the week, the dollar's recent domination continues to be biggest driver of short-term moves in GBP/USD.

Looking ahead, UK asset price moves, as well as the short-term direction of the pound, will be directed by this Thursday's Bank of England (BoE) rate decision. Last time round, the decision was a particularly close call, with the nine-member committee voting 5-4 to maintain rates at 5.25%.

This week's meeting is widely anticipated to follow the same path as last month. However, there could be a more significant swing within the committee towards a pause, given the broad economic slowdown witnessed throughout the UK lately. The previously robust labour market has shown signs of moderating, coupled with weak consumer demand (Retail Sales), ongoing tepid growth (GDP +0.2% in August) and weak PMIs for both manufacturing and services sectors.

As we have highlighted previously, a significant concern for the BoE remains persistent UK inflation. Although its moderated throughout much of this year; the latest figures suggest that there is an evident slowdown in the pace of declines, with annual headline inflation remaining at 6.7% in September. With the temperature getting cooler and energy prices experiencing a spike, this could add to any inflation concern over the winter period.

A combination of these factors could mean the BoE is likely to keep the door open to potential rate hikes should inflation remain elevated for longer, but recent comments suggest that is not currently its base case.

EUR

As widely expected, the European Central Bank (ECB) left its key policy rates unchanged at last week's meeting, ending its streak of 10 consecutive interest rate hikes. During that time, the ECB had raised rates by an unprecedented 4.5%.

Much like in the UK, recent European data has highlighted an increasing slowdown in economic output throughout the region. Although there have been a few current bright spots - the German manufacturing PMIs and forward-looking IFO surveys, for example - those improvements have been from a shallow base, with sluggish activity witnessed elsewhere.

During her post-meeting conference, ECB President Christine Lagarde implied that the ECB could hike rates again, although markets currently remain somewhat sceptical. However, this week promises to add some clarity to the outlook for the ECB, with the latest German and Regional inflation reports giving markets the first glimpse of Q3 data. Although sticky core inflation had dominated of late, recently, higher energy costs could put upside pressures on headline inflation.

Among other key incoming data, markets will also be paying close attention to the latest German growth data (GDP), Retail Sales and unemployment data, which are all released later in the week. Regional Business and Consumer Confidence will also be noteworthy.

The single currency has also struggled to find support, with EUR/USD declining in 13 of the past 15 weeks. Last week, the pair slipped by 0.33%, with the resurgent dollar dominating.

USD

The dollar recovered strongly to record another healthy advance last week, witnessed by a 0.4% rally in the dollar index (DXY) by last Friday's close after some downside movement at the beginning of the week.

The US economy's strength, compared to many other major economies, has continued to drive investment into the US and underpin the dollar's status as a safe haven currency. This is despite the somewhat mixed incoming Q3 earnings releases, especially among the dominant 'Magnificent 7' tech titans.

Last week's economic data continue to highlight the robust US economy, with Q3 growth surging by 4.9% on a preliminary basis in the previous quarter. The figure was ahead of expectations, with markets forecasting an increase of around 4.2% over the period and marked the fastest pace of growth in the US for two years. The latest Durable Goods Orders, which increased by 4.7% in September, further illustrated strong US economic activity.

Only a slightly higher than expected Initial Jobless Claims reading over the past week may be of slight concern, especially as we approach this week's key October Nonfarm Payroll report (NFP). After a bumper 336K new positions were added previously, markets will be keen to see if the US Labour Market continues to maintain its robustness.

Leading into the NFP, markets will also be paying particularly close attention to incoming JOLTS (job openings) and ADP (private payrolls) data. In a busy-looking week for US data, the latest ISM manufacturing and services PMI surveys will also interest markets.

Elsewhere, there will be a distinct lack of noise coming from the Fed, given that we have entered its self-imposed quiet period ahead of next week's FOMC meeting. Markets expect another pause from the Fed, given ongoing moderating inflation, witnessed by last week's Core Personal Consumption Expenditures (PCE) price index.

On the political front, last week's appointment of Republican Mike Johnson as the new House speaker could be a positive boost to helping to mitigate the possibility of an impending government shutdown. However, much work still needs to be done on that front.