Will sterling be boosted by the chancellors budget?
Last week was much of the same for sterling – reaching a fresh five-year low against the dollar, and continuing to achieve multi-year highs against the euro. For a short period sterling had managed to reverse the trend against the US dollar and make some gains, but this came to an end as the US dollar strengthened and passed through the key support level of 1.50.
Another relatively quiet week lies ahead for sterling, with no major releases until Wednesday when we have key employment data released in the morning. Average earnings have shown a steady increase over the past six months, and wages are forecast to have risen by 2.2% year-on-year – meaning we could see a boost for sterling. After declining for five months in a row, investors will also be looking for a similar reduction throughout February in the number of people claiming unemployment benefits. These releases will provide the warm-up for the main event that day, when we see the chancellor presenting the government’s annual budget. With the UK election only two months away, investors will be listening for any news which may affect monetary policy.
Euro – any light at the end of any tunnel?
Still under pressure, the euro did manage to gain ground against sterling on Friday but against the US dollar it lost a further 1% – ending the day close to 12-year lows as the release of a downbeat US economic report did not affect the dollar and as concerns over the outcome of Greece’s bailout talks persisted.
Looking to the week ahead, Tuesday is the key day for eurozone data with the release of ZEW German business confidence data – set to improve from 53 up to 59 – and inflation figures in the form of the Consumer Price Index data, which is forecast to improve slightly from -0.6% up to -0.3%.
US Dollar – still on the up
US dollar strength continued on Friday against both sterling and the euro, as well as the majority of its other peers. It is thought that a number of factors were behind this: the negative affect on sterling from Mark Carney’s comments on Thursday regarding interest rates, as well as the anticipation for the Federal Reserve Statement this Wednesday which will also focus on interest rates. Negative US data, including Producer Inflation and the Consumer Spending Indicator, did little to halt the dollar’s continuing strength.
We expect this week to be a volatile one: a quiet Monday will see the release of industrial production data, forecasted for a slight rise, followed by building permit data on Tuesday. The spotlight however will be on this week’s Federal Reserve Statement Wednesday, where an announcement on a rise of interest rates is expected; many banks and investors are predicting a gradual raise starting in the middle of this year. The press conference that follows will be interesting to see how the members, and in particular Federal Reserve chair Yellen, reacts to interest rates related questions.
Weekly unemployment claims are due Thursday, also forecast to be strong, and Federal Reserve member Lockhart speaking on Friday.
A busy week for central banks
This week is a busy week for central bank with the Japanese, Swiss and Norwegians central banks all meeting. The first two are expected not to change their central bank interest rates although the Japanese may announce further easing of their monetary policy as inflation becomes deflation. The Norwegians on the other hand are expected to cut rates by 0.25% to 1% which mirrors their neighbours.
