Sterling in for a lively week
A quiet week for data last week and a quiet week for sterling, appreciating slightly against the euro while remaining largely unchanged against the US dollar.
Commenting on the weekly currency market update from Smart Currency Exchange, director Charles Purdy said:
“This week is all change as we have a raft of data released here and from elsewhere in the world which may well mean that we will see a lot of movement in exchange rates, not least for sterling. Looking ahead, the major data releases in the UK this week will be the purchasing managers’ indices (PMIs). As ever, the figure from the services industry on Wednesday is likely to provide the most market impact, while releases from the manufacturing and construction industries earlier in the week will provide insight into the economic health of their respective sectors. Slight falls are expected from the previous month figures but all three indices are still expected to show expansion in their respective sectors. We also have the release of the latest interest rate decision from the Bank of England (BoE), which is likely to remain at 0.5%. More influential will be the release of minutes later in the month showing how each policy member voted as last month the markets were surprised to find that two of the nine members of the committee voted for an increase in interest rates.”
Key week for the Euro as the ECB meets
“Friday saw the euro fall further against its US counterpart, marking the seventh consecutive week of decline – the longest run in over a decade. Inflation and unemployment figures released on Friday morning came in as widely forecast, but it seemed that the forecast had not been fully priced into the market as we saw the currency hit fresh year-long lows against the US dollar. The euro held fairly steady against sterling, however, before dropping off to three-week lows on Friday afternoon.
“Looking forward to this week there are a number of releases of note, but the key event will be the European Central Bank (ECB) meeting on Thursday and the central bank press conference which follows. Most forecast that interest rates will be held at the current record low of 0.15%, with a handful of analysts suggesting we may see further cuts. However, the key item will be to find out what measures the ECB will be taking with regard to some form of quantitative easing as they try to bolster the Eurozone economy. All eyes will be on the press conference following the meeting for clarity on what the ECB is going to do.”
Will US data boost the US Dollar further?
“The US dollar closed out last week with a mixed Friday, with no drastic changes in its relative strength. An unexpected fall in consumer spending suggested that households were struggling as wages aren’t increasing as fast, but this was counteracted by a rise in the Purchasing Managers’ Index (PMI) from Chicago. Both this and the consumer sentiment from the University of Michigan were ahead of expectations, giving the dollar some strength and gains against a selection of partners, including the Euro.
“This week starts quietly with US markets closed in observation of Labour Day. Tuesday starts activity with the manufacturing PMI from the Institute of Supply Management (ISM) and then from Thursday we see the release of a whole raft of data including key and influential employment data. Labour data dominates with the independent non-farm employment change starting things as the regular precursor to the official figure. Following this will be unemployment claims figures, supported by trade balance data. The ISM then releases its non-manufacturing PMI variation, ahead of an equally busy Friday. On this day, labour figures are again key, with both the official non-farm employment change and the unemployment rate due. With this wealth of data, investors will be keen to see further encouragement for possible interest rate rises.”
Central Bank decisions from Canada, Japan and Sweden
– Interest rate decisions from the Bank of Canada on Wednesday and the Swedish Riksbank on Thursday will be closely watched to see if they differ from forecast.
– The Bank of Japan meets on Thursday with markets expecting no major change
