Busy second half of the week for sterling may be overshadowed by US rate decision
A currency market update from Charles Purdy, director of Smart Currency Exchange.
Sterling gained ground against the US dollar on Friday, despite better-than-expected retail sales data from the US. Although this would usually see sterling lose ground against the US dollar, further concern over global energy prices saw sterling push higher throughout the afternoon. In contrast to this, sterling fell away against the euro as it struggled to break away from recent one-month lows.
A quiet start to the week sees us wait until tomorrow for the first major economic data from the UK. Inflation data will be released in the morning, and is expected to have shown a modest increase of 0.1% throughout November. Employment data will follow on Wednesday, with attention focused on average earnings over the previous quarter. This figure is monitored closely by the Bank of England (BoE) while it considers interest rate decisions, making it a significant figure. Retail sales data for the previous month is set to be released on Thursday, although this is likely to be overshadowed by the announcement of the latest US Federal Reserve interest rate decision overnight.
Busier week for the euro
Friday was an end to an incredibly flat week for the euro as the final day had minimal movement against sterling, but a slight increase against the US dollar. This was down to investors closing off positions for the weekend and the previous European Central Bank (ECB) meeting still having a positive effect on the single currency.
With this week being the last full week before January we should expect a busy period for the single currency. The first major piece of data for investors will be German ZEW business confidence data, which is expected to drop slightly from last month’s figure of 54.4 to 54. On Wednesday inflation data is out from the Eurozone, where the current forecast is expecting it to drop back down from 0.1% back into the negative -0.1%.
US interest rate decision stands out in busy week
Positive US data releases on Friday failed to strengthen the US dollar further as investors prepared themselves for this week’s all-important US Federal Reserve interest rate decision. With both retail sales and producer inflation data doing better than expected, talk has returned to a possible interest rate rise as Federal Reserve Chair Janet Yellen previously stated that an increase will be data dependant.
It is going to be a busy week for the US dollar, with data releases expected on Tuesday. Consumer inflation is expected to contract from the previous month. The spotlight, however, will be on Wednesday evening, with the US Federal Reserve interest rate decision taking place, with many investors expecting the Federal Reserve to raise interest rates. If this does happen, we can expect the US Dollar to be supported against the majority of its peers; however, if the central bank leaves rates unchanged we can expect the US dollar to significantly weaken.
Pivotal data due from New Zealand
This week we see the release of some pivotal data from New Zealand, starting on Tuesday, with the GDT Price Index. More importantly, Wednesday sees the release of growth figures, which are expected to be better than last quarter’s as the country has rallied well in the most recent quarter, after recovering somewhat after the stock market crash in China over the summer.
The Swedish central bank, the Riksbank, announces its interest rate decision tomorrow. With inflation continuing to be low, and even though the Swedish interest rate is already in negative territory, the persistency of low inflation could well see the Riksbank cutting the interest rate even further from the -0.35%.
The Canadian economy has its busiest day on Tuesday, with manufacturing sales released, as well as Bank of Canada Governor Stephen S. Poloz due to speak – the latter usually causes market fluctuations as people try to decipher how his words could affect the Canadian economy.
