Sterling strong against the euro but weaker against the US dollar
A mixed week for sterling last week saw it gain ground against the euro, lose ground against the US dollar and hold relatively steady against the other major currencies. On Friday, Mark Carney, the Governor of the Bank of England, reemphasised that an increases in UK interest rates would be gradual. Not a huge surprise but it did dampen sterling’s progress against the euro during Friday.
This week ahead sees little in the way of influential data releases from the UK, although the G7 meetings throughout the week may generate some market movements. Here, we are likely to see a number of economic policies discussed – including the global slow-down in economic growth and the continuing stalemate with Greek debt, both of which have the potential to impact global currency markets. Investors will be eager to hear the insight of finance ministers from seven of the most influential countries on the planet.
Aside from this, the second estimate of UK economic growth for the previous quarter is set to be released on Friday, which is expected to show a slight improvement from the first estimate. However, if the estimate points towards a further slowdown in the UK economy, we could see sterling suffer towards the end of the week.
Euro continues to weaken
The euro had a difficult few days last week, losing out against both sterling and the US Dollar. The single currency had initially strengthened after European Central Bank (ECB) President Mario Draghi confirmed that recent policies have encouraged the Eurozone’s economy to begin a slow but certain recovery – but it later lost its gains against the US dollar, dropping to a one month low thanks to better than expected US inflation data.
Greece’s Prime Minister Tsipras has secured approval from his Syriza party to the finalise an agreement with their lenders. Good news for the Eurozone, the euro and the world economy. Hopefully, there will be no final slip up as the saga has gone on for too long and stability is needed, not least for the Greek people.
The main data releases for the week ahead will be consumer confidence, for both Germany and France on Wednesday – along with retail sales from Germany.
US Dollar still buoyant
Friday was a very positive day for the US dollar on, as American Core inflation data grew to highs that have not been seen for nearly a year. This was a very positive figure for the US economy, which has been struggling with low inflation due to the low oil price. As a result of this, the American currency strengthened against both sterling and the euro – touching the 1.54 level with sterling and the 1.10 level with the euro.
With various US Federal Reserve members speaking throughout this week, the first big data releases will be on Tuesday, following Bank Holiday Monday in the UK. Durable Goods orders and the Conference Board’s (CB) Consumer Confidence are both expected to show slight increases on the previous month. Wednesday will see the start of the G7 meetings, which continue until Friday. Discussions here are likely to be centred around the current sanctions, and situation with Russia. The weekly unemployment claims are also due on Wednesday, with another strong figure predicted.
The biggest release of the week will be on Friday, with an update to the first quarter growth figures. Expectation is that the US economy will have contracted in the first quarter of the year – mirroring the first quarter of 2014. This is expected to back up recent talks that the US economy has experienced a slowdown.
Poor sterling performance is good for the Yen and AUD
The Japanese Yen and AUD both rose against the pound on Friday – along with most other currencies, thanks to a poor performance from the British currency.
Looking to this week ahead, we see very little data of importance for both these currencies until mid-week. Japan’s monetary policy meeting minutes are released on Wednesday, and of course they will be part of this week’s G7 meetings from Wednesday.
For the Australian dollar, a big shift in the markets is expected with the release of their private Capital expenditure data – they will be hoping for better results than last quarter, when reports fell way below forecasts.