Employment data was all Sterling needed
Although last week was a quiet week for UK data, claimant count figures gave sterling the boost it needed
to see the GBP/EUR rate touch the 1.19 mark. This week is a bit more eventful as Tuesday sees the release
of inflation figures at 09:30. This will be of particular interest as economic data has continuously pointed towards a stronger UK recovery, which has spurred doubt as to whether the timeframe given under forward guidance is appropriate. In a meeting with the Treasury committee, the central bank reinforced that if inflation breached the knockout condition of 2.5% in the medium-term, it would simply cause the monetary policy committee to assess why and then consider what action to take. A high inflation number may encourage speculation that the BoE will re-examine policy and ultimately raise rates earlier than the 2016 benchmark. The BoE monetary policy minutes due on Wednesday morning (09:30) will also be of interest, especially since the central bank didn't provide an accompanying statement following the announcement of the official bank rate. Retail sales figures released on Thursday are expected to follow the trend of recent UK figures and provide upside surprise. This should see sterling remain in control of the GBP/EUR rate, maintaining levels of 1.19 during the week. The GBP/USD rate will see a lot of volatility ahead of the all-important Federal Reserve meeting on Wednesday. The increasing likelihood that the Fed will delay tapering until at least the October meeting, creates a possibility sterling could maintain momentum against the US dollar.
Euro strength falters
Euro strength seen towards the end of August now seems like a distant memory. Since the start of September some eurozone fundamentals have been disappointing, allowing sterling to take advantage. This week sees the German ZEW Economic Sentiment due on Tuesday at 10:00, which is expected to improve to 45.3 from 42.0. Better eurozone figures are unlikely to provide the euro with much momentum, especially as negotiations regarding Portugal’s fiscal target are underway. Despite more disappointing US figures, the euro failed to capitalise and we doubt any eurozone releases will see the euro gain much ground. While we predict the single currency will remain on the back foot against sterling, it may stand more of a chance against the dollar if tapering doesn't begin this month.
to see the GBP/EUR rate touch the 1.19 mark. This week is a bit more eventful as Tuesday sees the release
of inflation figures at 09:30. This will be of particular interest as economic data has continuously pointed towards a stronger UK recovery, which has spurred doubt as to whether the timeframe given under forward guidance is appropriate. In a meeting with the Treasury committee, the central bank reinforced that if inflation breached the knockout condition of 2.5% in the medium-term, it would simply cause the monetary policy committee to assess why and then consider what action to take. A high inflation number may encourage speculation that the BoE will re-examine policy and ultimately raise rates earlier than the 2016 benchmark. The BoE monetary policy minutes due on Wednesday morning (09:30) will also be of interest, especially since the central bank didn't provide an accompanying statement following the announcement of the official bank rate. Retail sales figures released on Thursday are expected to follow the trend of recent UK figures and provide upside surprise. This should see sterling remain in control of the GBP/EUR rate, maintaining levels of 1.19 during the week. The GBP/USD rate will see a lot of volatility ahead of the all-important Federal Reserve meeting on Wednesday. The increasing likelihood that the Fed will delay tapering until at least the October meeting, creates a possibility sterling could maintain momentum against the US dollar.
Euro strength falters
Euro strength seen towards the end of August now seems like a distant memory. Since the start of September some eurozone fundamentals have been disappointing, allowing sterling to take advantage. This week sees the German ZEW Economic Sentiment due on Tuesday at 10:00, which is expected to improve to 45.3 from 42.0. Better eurozone figures are unlikely to provide the euro with much momentum, especially as negotiations regarding Portugal’s fiscal target are underway. Despite more disappointing US figures, the euro failed to capitalise and we doubt any eurozone releases will see the euro gain much ground. While we predict the single currency will remain on the back foot against sterling, it may stand more of a chance against the dollar if tapering doesn't begin this month.
US dollar gets a battering
The dollar took a beating last week, with sterling finishing off the job on Friday, pushing the GBP/USD rate to 1.5876. Poor US figures including non-farm payrolls figures and retail sales has contributed to the dollar’s downfall. The major driver of the greenback this week will be the outcome of the Federal Reserve meeting on Wednesday evening (7pm). A decision to reduce stimulus would see the US dollar rebound, while one to keep the asset purchase program on hold for at least another month could keep the currency vulnerable at least for this week. Dollar strength is mostly dependent on the Federal Reserve’s comments and actions. Even if the Fed decide not to go ahead with tapering this month it is still on the cards, and data from Wednesday onwards could be seen as another opportunity to warrant a reduction in stimulus to begin in October. For this reason we see the dollar remaining vulnerable for the earlier part of this week, with a slight window for strength as the weekend approaches.
End of week forecast
GBP / EUR
|
1.1950
|
GBP / USD
|
1.5855
|
EUR / USD
|
1.3275
|
GBP / AUD
|
1.7175
|
Sasha Nugent
Currency Analyst
Caxton FX
