Lots of data releases ahead for the UK – will this help sterling?
Currency market update from Charles Purdy, director of Smart Currency Exchange.
A mixed end to the week for sterling saw it fall to a fresh seven-year low against the US dollar whilst showing a second straight day of gains versus the euro. This week we may have less focus on the EU referendum and more on the steady stream of key UK economic data being released.
This is an important week for sterling, with the release of the monthly purchasing managers’ index (PMI) figures from a number of industries. Manufacturing data will be the first of these when it is released on Tuesday. With steady growth seen since 2013, there is no expectation of any surprise in this figure. Data from the construction industry has shown strong growth over the last year, although there have been some recent surprises to the downside. Should we see the same on Wednesday, sterling could lose ground against its major trade partners. Thursday’s services PMI figures will be the most influential and are expected to show modest growth throughout the sector. Aside from this, markets will continue to react to the upcoming EU referendum, with sterling remaining sensitive to news and influences on the potential outcome.
Disappointing end to the week for the euro
The euro dropped to its lowest value since the start of February against the US dollar on Friday, thanks to strong US economic reports. Against sterling the euro also had a surprisingly poor morning, as it moved over 1% but the majority of this was eradicated in the afternoon. Data from the Eurozone on Friday showed that Germany’s consumer price index moved up to 0.4% in February, lower than the expected 0.5%, and down from last month’s 0.8%. This figure was actually the same as we saw this time last year.
The first main release for the week will be flash consumer price index from the Eurozone, a key figure as inflationary pressures continue to weigh on the single currency. On Wednesday Purchasing Managers Index for the euro is expected to fall again, from 52.3 down to 51 – and this is likely to cause euro weakness and increase the likelihood of the European Central Bank increasing its program of quantitative easing in the first half of March.
Busy week ahead for the US dollar
It was a quiet Friday morning for the US dollar, with sterling attempting to recover from its recent hits. However, with better than forecasted growth in Gross Domestic Product (GDP) for America, as well as Personal Spending and Personal Income both growing better than expected this was short lived.
We can expect further movement this week with the all-important Non-Farm Employment Change on Friday. Leading up to this release we can expect various indications on Wednesday and Thursday, with the ISM manufacturing Purchase Managers Indices (PMI) and Non-Manufacturing PMI’s expecting mixed releases. The worry continues to be how robust is the US economy and how likely are further increases in US interest over the rest of 2016.
Commodity currencies expected to be affected by numerous releases this week
The Aussie and Kiwi dollar have both lost some of the strength previously gained thanks to sterling’s poor performance last week.
We have a raft of information released from Australia including New Home Sales, TD Securities Inflation (year-on-year) and Company Gross Operating Profits. We expect further movement this week, and expect the commodity-linked currencies to be negatively affected if an oil freeze on supply is confirmed this week. In the evening, we will also see New Zealand release their Terms of Trade Index.