Will sterling continue strengthening this week?
A currency market update from Carl Hasty, director of Smart Currency Business.
After hitting three-month highs against the euro on Thursday, sterling struggled to hold onto these levels on Friday with no major economic data released to sway the currency.
A quiet week lies ahead for sterling, with limited economic data releases. Public sector net borrowing figures for April are released tomorrow with an expectation of an increase to £6.4bn. Any surprise to the downside could lend support to sterling. Thursday brings the release of the latest economic growth figures from the UK as the second estimate of gross domestic product is revealed. This should show the same 0.4% growth recorded throughout the previous quarter, although any difference from this figure could result in sterling movement.
Potential movement in euro markets today
Friday was a mixed day for the euro as it remained flat throughout the day against the US dollar but it erased a fair proportion of the losses seen against sterling as investors were looking to profit from the movements and close their positions before the weekend.
This week is likely to get off to a highly volatile start with Monday seeing the release of key data. Firstly, we have flash Purchasing Managers’ Index (PMI) data from the Eurozone, which is anticipated to increase slightly, from 53 up to 53.2. Consumer confidence is also released, which is expected to improve from -9.3 up to -9, which is still a dismal figure. Any deviations from these expectations could affect the euro’s performance.
More opportunities for US dollar strength this week?
The US dollar strengthened on the whole for the third week in a row last week, posting gains against all of its peers apart from sterling which benefitted from the belief that the UK will vote to stay in the European Union. This was due to positive messages regarding the likelihood of an interest rate hike. Thursday evening saw Federal Reserve Bank of New York president William Dudley reiterating that a hike could come ‘sooner rather than later’. A lack of Tier One data led investors to look to potentially positive G7 meetings over the weekend.
The US dollar is likely to remain in its holding pattern until Thursday, when the first real data of note is released, in which we will see the release of durable goods orders. These are expected to show slower growth compared to the previous month. On Friday we can look forward to preliminary growth figures, which are expected to show faster growth than in the previous quarter.
Busy week down under
After this weekend’s G7 meetings, some of the group’s members will turn their focus back to their own nations.
Things are expected to be busy in the Oceanic countries, with the Reserve Bank of Australia (RBA) governor Stevens speaking early on Tuesday. On Thursday. Australia also releases its private capital expenditure data. Meanwhile, we will see trade balance data from New Zealand late on Tuesday, followed by its annual budget on Thursday, which is likely to cause more volatility.
