Will sterling budge for the Budget on Wednesday?
A currency market update from Carl Hasty, director of Smart Currency Business.
A late surge for sterling saw the currency recover some lost ground against the euro on Friday, and finish the week at a fresh one-month high against the US dollar. Sterling investors can pause to draw breath at the start to the week, with no major economic data set to be released from the UK until Wednesday.
Labour data is set to be released on Wednesday and, with unemployment remaining steady at an eight-year low of 5.1%, it is average earnings data that will provide the main focus. Later in the day, investors will turn their attention to Chancellor George Osborne, who will announce the government’s annual budget, and possible offer some further insight into the government’s views on Brexit.
There will be no rest on Thursday, with the release of the Bank of England (BoE)’s latest interest rate decision, and the minutes from this meeting. This will reveal both the voting pattern of monetary policy committee members, and their thoughts on the direction that future monetary policy should be taking. As such, we could see significant sterling movement in the wake of this release.
Final inflation figures for Eurozone
Friday was a quieter end to the week for the euro after having a busy day on Thursday. The euro, after making significant gains against the US dollar and the pound on Thursday, was under pressure on Friday as the European Central Bank (ECB)’s most recent policy statement finally hit the single currency and it lost most the gained ground against sterling. Final Consumer Price Index (CPI) figures from Germany came out as expected. These were lower than previously, reinforcing the need for Thursday’s interest rate cut and additional quantitative easing.
This week is certainly not expected to be as busy as last, but on Thursday final Eurozone inflation figures are released. These are forecast to improve dramatically, from -1.4% up to 0.1%. Given the state of the Eurozone economy, however, this figure may not be achieved, which could affect euro markets.
US interest rate decision – no change likely
It was a reasonably quiet morning for the US dollar on Friday, with no major data releases. However come the afternoon we saw the US currency weaken against majority of currencies losing just under two cents against sterling and one cent against the euro.
We can expect a busy week starting on Tuesday, with Core Retails Sales and Producer Inflation data both expected to fall into negative territory. Wednesday we can look forward to Consumer Price Index (CPI) figures. A measure of inflation, the CPI is expected to show contraction. This will be followed by the US Federal Reserve Interest Rate Decision later that evening. No change is expected but the markets will be looking very closely at what is said post the meeting so as to gauge the possible timing of when US interest rates will next be increased. June is very much the timing favoured by the markets.
With the bulk of major releases due out in the middle of the week, we finish the week off with Consumer Sentiment in the US, which is expected to post a better than the previous month figure. Various Federal Reserve members will also be speaking which has the potential to impact US dollar markets.
Busy week for central banks
As well as the UK and US central banks meeting this week, we also have the central banks of Norway, Switzerland and Japan meeting. Japan (Tuesday) and the Swiss (Thursday) are unlikely to make any changes at their meetings. Norway, on the other hand, is expected to reduce their interest rate given the parlous state of their economy and their dependence on oil. This should weaken the Norwegian krone.
The Australian dollar had a strong end to the week last week as it gained against all major currency crosses, including 1.5% against the US dollar. Their Australasian counterparts also fared well alongside most commodity currencies, as analysts suggest the worst of the commodity rout is behind us. Looking forward to this week, we have the release of Australian monetary policy meeting minutes early on Tuesday. More importantly, we expect employment data on Thursday’ last month’s results fell below expectation, so markets will be poised around the uncertainty of a turnaround.