Can sterling recapture the losses it sustained last week?

A currency market update from Carl Hasty, director, Smart Currency Business.

Sterling ended last week at its weakest point against the euro for two months, as investors reacted favourably to the news of Greek Prime Minister Tsipras’s resignation and the call for snap elections – although the British currency was able to push higher against the US dollar, as economists pushed back their bets on when the Federal Reserve would raise interest rates.

Sterling has continued to weaken this morning as the market pushed back its expectations for an interest rate hike from the Bank of England (BoE).

On the data front, it is due to be a quiet week for sterling, with little informative fundamental data released from the UK until Friday; here we will see the second estimate of UK economic growth. This revised figure is always keenly awaited, with any changes caused by a greater understanding of the economic environment likely to cause market movement. Aside from this, the annual Jackson Hole Symposium begins on Wednesday, with a host of speeches from central bankers and other influential officials. With representatives from across the globe present, there is a great likelihood that we could see a reaction across the entire foreign currency market.

Great end for the week for the euro

The euro strengthened across the board last week, breaking down the all-important GBP/EUR level of 1.40 thanks to positive news from the Eurozone throughout Friday. Purchasing Managers’ Index (PMI) data was released at 54.1, slightly better than the forecast figure of 53.8, while Consumer Confidence data was also an improvement of the forecast figure, hitting -6.8; a sign that the Eurozone is growing in strength.

The confirmation that a third Greek bailout had been passed by Greece’s creditors and its parliament enabled the single currency to move to a two month high against sterling, and when Greek PM Alexis Tspiras stood down late on Thursday this only served to push the euro higher.

There are important figures to be released this week, with IFO German Business Sentiment data and Gross Domestic Product (GDP) due today, and German retail sales later in the week – both of which are likely to impact the euro.

A plethora of data due for the US dollar this week – will it strengthen?

There was not much movement on Friday for the US dollar, although Manufacturing Purchasing Managers’ Index figures were slightly down compared to expectation, and the previous month.

We should be in for a busy week for the US dollar, with a basket full of data due throughout. Monday will see US Federal Reserve member Lockhart speak; expected to discuss last week’s Federal Reserve meeting minutes. Tuesday will see the release of Flash services Purchasing Managers’ Index (PMI), consumer confidence and new home sales, all expected to show moderate growth. Durable goods orders are due for release on Wednesday, and these are expected to show slight growth, but be below the previous month’s release. The focus this week will be on the Preliminary Gross Domestic Product (GDP) figure, expected to show very strong growth – the highest for three months.

However, much of the focus will remain on China, following last week’s Federal Reserve meeting minutes where they stated that the events here were a concern to the US economy.

Busy week ahead for the Antipodean countries

There are a flurry of pivotal data out midweek for Australia and New Zealand. It’s a busy Tuesday for New Zealand, with the inflation expectations and Trade balance, with the latter due to be 540m worse than last month – thanks to the devaluation of the Yuan, and the drop in commodity prices with exports being down in recent weeks.

The Australians will be releasing their quarterly private Capital expenditure early on Thursday, shortly after Governor Stevens speaks on Wednesday. The results are forecast to be slightly better than last month, and no doubt investors will be hoping for the continuing strength that was seen at the end of last week as they near the time for their proposed interest hike.