All eyes on UK central bank meeting on Wednesday
A weekly currency market update from Carl Hasty, director of Smart Currency Business.
A lack of significant economic data from the UK on Friday put sterling at the mercy of data released elsewhere. Positive data from both the Eurozone and US caused the UK sterling to drop slightly throughout the day.
This week, key releases begin on Wednesday, with manufacturing production data in the morning. Thursday will be a busier day, with more opportunities for sterling movement, with minutes from the Bank of England (BoE)’s Monetary Policy Committee (MPC) due, as well as the monthly vote on interest rates. Last month saw only one member vote for a rate rise. Given the events in China and their ripple effect on global economies, a shock increase in interest rates is unlikely.
The question of QE for the euro
The euro strengthened slightly against sterling on Friday, but the only significant moment came from US non-farm payroll data, which weakened the euro slightly against the US dollar, before moving back to previous levels. German factory orders declined by 1.4% in July, compared to expectations for a 0.6% slip, which also contributed to the slight euro weakness.
The European Central Bank (ECB) indicated last week that it could expand its quantitative easing program amid increased risk to its inflation target. The central bank also lowered its forecast for growth and inflation, with the main reason being slow growth in China. As such, the euro is expected to remain under pressure this week, particularly with Eurozone growth figures on Tuesday expected to fall slightly, from 0.4% to 0.3%, and German growth figures expected to remain flat.
Will the US dollar continue to strengthen this week?
Friday continued to give US dollar strength, even with worse-than-expected non-farm employment change. However due to the July figures being revised up, and unemployment continuing to drop, this allowed the US dollar to strengthen further. Average hourly earnings – a key economic indicator for the US economy – also showed further improvements.
This week could start off slowly for the US economy, with a Labour Day bank holiday on Monday. We will see the first piece of significant data out on Wednesday, with JOLTS job openings expected to show slight growth on the previous month’s figures. Weekly unemployment change on Thursday is also expected to show a stable figure. Friday will see the release of producer inflation data, which is expected to show its second negative figure in the last six months. Also released on Friday will be consumer sentiment data, which is expected to register a decline. With these discouraging figures due, we could see a turn in the US dollar’s fortunes.
Key Chinese data and a busy week for Australia and New Zealand
China trade data is out tomorrow and is expected to show further slowdown in both imports and exports as falls in commodity prices and reduced demand take effect. Any shift from expectation is likely to have a significant effect given the sensitivity to the Chines economy at this moment in time.
We have a busy week ahead for the Oceanic nations, as Australia and New Zealand will see a series of important data releases. We are expecting important unemployment figures from Australia on Tuesday, as well as business confidence data. Given that last month’s unemployment rate was below expectations, it will be interesting to see how the labour market has performed more recently, especially in the face of the recent crunch on commodities.
The New Zealand economy will have its busiest day on Wednesday in terms of significant data releases, with the official cash rate as the main focus of the day and week.