Busy week for sterling as we anticipate BoE reports and inflation data
Commenting on the anticipate BoE reports and inflation data, Charles Purdy, director of Smart Currency Exchange said:
“There was no significant economic data out of the UK on Friday, so sterling’s fate was in the hands of external influences with the net result being that sterling gave back the gains it had made in the first part of the week. The US dollar benefited from an upward revision to the US’s Gross Domestic Product (GDP) figure for the previous quarter from 1.5% to 2% although the last quarter disappointed. The euro benefited from the eurozone’s on-target Consumer Price Index (CPI) estimate although other eurozone data disappointed.
“Looking ahead, sterling is in for a busy week. We kick things off with the UK Manufacturing, Construction and Services Purchasing Managers’ Index (PMI) on Monday, Tuesday and Wednesday respectively. All are expected to continue to show industry expansion, but should data be lower than forecast figures, we could see further pressure on sterling. The busiest day this week comes on Thursday, where we are going to see the Bank of England (BoE)’s Inflation report and Monetary Policy rate decision released at midday, shortly followed by governor Mark Carney’s speech regarding the decision. The results of these could affect sterling markets significantly.”
Key data from eurozone could shift markets up a gear
“The euro was weaker against the US dollar and slightly stronger against sterling on Friday after the release of mixed economic reports from the eurozone. Preliminary data on Friday showed that inflation in the eurozone rose by 0.4% this month, in line with expectations and after a slight increase of 0.2% in December. Further data on Friday showed that German retail sales fell 0.2% in December, compared to expectations for a 0.5% gain and after a revised 0.4% increase for the previous month.
“Monday is expected to be a busy start with a raft of Purchasing Managers’ Index (PMI) data from Spain, Italy, France and Germany, as well as from the eurozone as a whole. Tuesday has the potential to also be an important day for euro markets, with unemployment figure out for the eurozone. This is expected to remain at 10.5% but in recent months it has been falling consistently but slowly, so any surprises could cause fluctuations in euro strength.”
Jobs in the limelight in a busy week for the US economy
“It was expected to be a busy day for the US dollar on Friday, with Advance Gross Domestic Product (GDP) figures to be released. The figure disappointed, with growth slower than expected; however, the US dollar continued to strengthen on the back of the previous quarter being revised up by 0.5%.
“We are in for a busy week, starting with Personal Spending and Personal Income data released today, with both figures due to show continued growth. Also released will be ISM Manufacturing Purchasing’ Managers’ Indices.
“The spotlight on this week will be on Friday’s all-important Non-Farm Employment Change, which is expected to show its lowest growth figure for four months. Leading up to this will be various indicators on Wednesday and Thursday. These could allow for multiple opportunities for dollar market fluctuations.”
All eyes on the yen following Friday’s dive
“The Japanese yen has felt the consequences of the Bank of Japan’s dropping of its deposit rate into the negative territory. The currency fell over 2% against the US dollar, wiping out all gains made so far in 2016. Bank of Japan Governor Kuroda has also suggested that the rate will be dropped even lower if required, so it looks like the Japanese yen’s recovery was rather short lived.
“Tomorrow sees a flurry of data out in Oceania. Very early morning we have the Australian cash rate, accompanied with a Reserve Bank of Australia (RBA) Rate Statement; the cash rate is expected to remain at 2%, so any surprises could move Australian dollar markets. Later in the evening there is employment data from New Zealand – expected is employment change at 0.8% for the quarter, which is 1.2% up from last quarter’s figure, so any surprises here could also have an impact on the New Zealand dollar.”