Could sterling finally find support after weeks of losses?
A currency market update from Charles Purdy, director of Smart Currency Exchange.
Sterling finally found support at the end of last week, unwinding some of the recent losses as confidence in the strength of the Eurozone economic recovery waned. Disappointing UK retail sales data showed a contraction of 1% throughout December, but sterling was still able to gain ground across the board as this data was largely overlooked.
Some better-than-expected economic data last week gave the British currency signs of finding its feet for the first time in 2016 so far. We expect a quiet week this week’; Bank of England (BoE) Governor Mark Carney will kick things off tomorrow when he testifies before the treasury select committee. Having spoken at length about the risks facing the UK’s economic recovery last week, investors will be interested to hear any further insight into monetary policy. Aside from this, Thursday’s preliminary Gross Domestic Product (GDP) figures will provide the earliest look at economic growth throughout the previous quarter, and as such carries significant weight throughout the markets.
Draghi’s words continue to reverberate around the Eurozone
The euro had a difficult end to last week, as it pushed down against both sterling and the US dollar on Friday thanks to expectations for additional stimulus measures by the European Central Bank weakening the demand for the single currency.
This was all a result of European Central Bank (ECB) President Mario Draghi’s words the previous day – that it would be necessary to “review and reconsider” the bank’s monetary policy stance at its next meeting in March. In the morning on Friday, flash purchasing managers index from the Eurozone was also released at lower than forecast figures: 53.5 compared to 54.2.
This week we have the release of consumer confidence data; the previous figure of -5.7 was a slight increase from the previous month, so the Eurozone will certainly be hoping that this ticks up slightly again. Other than this, we are not likely to see a huge amount of movement from the area this week, so investors will be looking at other markets for any major news.
Busy week ahead for the US dollar – will its strength continue?
It was a quiet day for the US dollar on Friday, with minimal data releases. Those did however spawn positive results, with both Flash Manufacturing Purchase Managers’ Indices and Existing Home Sales growing against the previous month’s figures.
We can expect this week to be a much busier one for the US, with some major data releases. Tuesday will see the release of consumer confidence, which is expected to show a slight increase on the previous month – while Wednesday will be a key day. The US Federal Reserve is expected to make a further Interest Rate decision then; it is expected that they will these on hold, but it will be the statement afterwards that keen investors will look out for: are Federal Reserve members in favour of another Interest Rate Hike in the short term? Friday is just as important, with Advance Gross Domestic Product (GDP) figures released. It is expected that these will show growth, but this will be at a slower pace compared to previous figures.
Has the strength of the Yen this year been solely down to weakness elsewhere?
This week will offer more of a real insight of the Japanese economic health. While the Japanese Yen has experienced a surge in strength so far in 2016, it is widely believed that this is more to do with the failings of commodity currencies making the Yen a safe haven – rather than any positive signs on their part. On Thursday, we will have their Consumer Price Index (CPI) figures, and this Friday the Bank of Japan will have a press conference to outline their expectations.
Further south, the New Zealanders kick off their week on Wednesday, releasing their trade balance and Official cash rate. It has been one of the worst performers so far this year so some positive data this week would give the Kiwi’s a much needed boost.