Over the past week, the dollar has weakened slightly against the single European currency and more significantly against the pound. All this happened against the background of almost complete absence of any data from the US, despite the increase in the number of applications for unemployment benefits. The number of primary applications increased from 229, 000 to 239, 000, and rose from 1,884, 000 to 1,901, 000. Meanwhile, European and British data were much more interesting. In particular, the growth rates of producer prices in Europe accelerated from 2.5% to 2.9%, and retail sales from 2.3% to 3.7%. Thus, inflation expectations in Europe are growing, and with them, consumer activity. Also, industrial production growth in the UK accelerated from 1.8% to 2.5%.
At first glance, this will not be an easy week for the dollar. The rate of producer price growth may slow from 2.6% to 2.4%, and with it inflation from 2.2% to 2.0%. In addition, a significant slowdown in retail sales is expected, from 4.4% to 3.0%. Against the backdrop of slowing inflation, the decline in consumer activity is an extremely unpleasant combination, and there may be talk that the Fed will not raise the interest rate in December. Good news is expected only from the industrial sector, whose growth rates should accelerate from 1.6% to 2.3%.
Data from the U.S. are frequently released, and they are extremely significant, but European statistics can offset some of the negative. In particular, the growth rate of industrial production may slow from 3.8% to 3.4%. Although inflation and GDP growth may remain unchanged. Nevertheless, inflation steadying at 1.4% is not the best result, as the ECB will not explicitly consider the possibility of raising the refinancing rate
In the UK, inflation is projected to further increase from 3.0% to 3.1%, and with this development, it seems extremely unusual that the Bank of England will raise the refinancing rate only twice before the end of 2020. However, even such an increase in inflation will not correct the deteriorating state of retail trade, whose growth by 1.2% should be replaced by a decline of 0.8%. The only thing that can even be slightly positive is the data on unemployment, which should remain unchanged.
By the end of the week, the euro/dollar pair has all opportunities to rise to 1.1725.
The pound/dollar pair may finish the week at 1.3225.
