Sterling in the ascendancy, will it last?
Weekly currency market update from Charles Purdy, director of Smart Currency Exchange.
Last week was a positive week for sterling gaining ground against most other currencies. Against the euro it is back close to highs last seen in 2007 and against the US dollar it enjoyed its second week of gains in a row. The key question is will it be able to maintain this upward momentum in what is a quiet week for key and influential UK data releases? I suspect it’s movement is more dependent on what happens elsewhere.
As noted, the week ahead sees little in the way of influential releases from the UK, with Wednesday’s quarterly inflation report from the Bank of England (BoE) providing the major talking point. With an uncertain situation in the Eurozone, as well as sluggish global economic growth, it will be interesting to see the BoE’s views on how events will affect the UK economy in the near future. The accompanying speech from BoE governor Mark Carney could also see increased movement in the markets, with investors paying keen attention to any hints relating to interest rate decisions.
Aside from this, industrial and manufacturing production growth figures on Tuesday are likely to be the major supporting figure. Should this follow suit from strong growth data released last week, we could see further sterling strength.
Euro still very much in the hands of the Greeks
It was a mixed week for the euro, with Friday being a particularly bad day for the euro. Greece’s debt issues still remain key and was the major talking point across the last week. The euro in the short term will be a good gauge of the overall sentiment on the Greek economy and how well Greece can re-negotiate their bailout package. Uncertainty coupled with brinkmanship will occupy most of February.
For the week ahead it will be a big day on Thursday. The Consumer Price Index (CPI) data from Germany will be released which is forecast to worsen to -0.5% from December’s figure of 0.1%; any surprises could cause significant shifts in euro markets. On the same day we will also have European industrial production data due, which is forecast to increase slightly on last month’s figure, from 0.1% to 0.2%.
Thursday is also the day European Union leaders meet in Brussels. No doubt Greece will be at the top of the agenda and so the euro could be in for a bad end to the week just like this week.
US Dollar boosted by positive employment data
A challenging week for the US turned positive on Friday with unexpected better than forecast non-farm employment data for the fifth month in a row. This allowed the US some much needed-relief after a torrid week which showed negative employment indicators and a worse-than-expected trade balance figure, which led to banks decreasing their 2015 US growth forecasts.
We can expect a quiet first half of the week for the US this week until Thursday, with little data releases due before then. The G20 meetings take place on Monday and Tuesday, in which reports usually come out during the day with news that has been discussed. In addition to this, we have a couple of Federal Reserve members speaking, with the spotlight on when the US might raise their interest rates.
Thursday is expected to be the busiest day of the week with retails sale figures and the weekly unemployment claims data which are both expected to show improvements compared to the previous releases, followed on Friday with consumer sentiment data (a leading indicator for consumer spending in the US).
Are commodity backed currencies finding a bit of stability?
The Australian dollar finished strongly on Friday after a busy week. The Reserve Bank of Australia (RBA) eased their outlook for inflation, leaving no clues as to what its next policy move will be. The quarterly statement of Monetary Policy also assumed a lower path for the cash rate and into took into account the fall in the currency’s value.
Friday saw statistics Canada release the country’s trade deficit data. This widened to C$0.65bn in December, up from C$0.34bn in November. Industry specialists had expected the deficit to widen to C$1.00bn.