Can the UK do it again?
It all begins again for the UK. Can sterling continue to produce such impressive figures to kick start the month on a good note? This week will most likely set a good tone for the majority of the month with a number of economic figures due. The main focus will be on PMI figures, and after last month’s golden performance, investors will definitely be waiting to see if it was just a one off. Last week, BoE Governor Mark Carney displayed a more hawkish tone. Carney explained that although the central bank would consider further QE if the recovery falters, his personal view is the recovery is strengthening and therefore more QE isn’t needed just yet. This allowed the pound to dominate, however with various economic figures and speeches out of the eurozone and the US, sterling will be under pressure to keep both the GBP/EUR and GBP/USD rates under tight grip.
Euro aims to be seen
Dovish statements from ECB members weakened the euro towards the end of last week and this is likely to continue in the days ahead. The monthly ECB rate announcement is on Thursday and in the following ECB press conference, President Draghi is most likely to reiterate points he has made in earlier speeches. Considering recent eurozone performance, we do not expect the ECB to adjust their current interest rate. A slew of economic data will be published this week including Spanish and Italian manufacturing and services PMI figures. Unemployment data for Germany, Spain and the eurozone aggregate will also be released and will attract at lot of attention considering the regions struggle with unemployment. A surprise improvement in the labour market will definitely be welcomed by the market and if this occurs, we should see the euro gain. German and eurozone aggregate retail sales numbers are also due and the single currency is likely to remain vulnerable against sterling if UK PMI data exceeds expectations. If the US government can come to a solution for its fiscal problems in time, it would also be big week for the dollar, where positive US employment figures could overshadow improvements in the euro area. Although UK and US developments could cloud euro strength, we believe that the euro will be able to pare back some of its losses during the course of the week.
Non-farm payrolls and Bernanke to direct dollar movement
Recently US economic figures have been missing expectations, and this has caused the dollar to remain weak against both the euro and sterling. The GBPUSD rate revisited levels of 1.61 on Friday, while the EURUSD rate sat comfortably above 1.35. The September 18th Fed meeting which saw the asset purchase programme remain on hold, triggered a downward spiral for the dollar, and this week, greenback will aim to start the month more positively. Provided the US government can come to an agreement regarding fiscal policy, non-farm payrolls and the employment rate are significant data releases which are most likely to set the tone for the month. ISM manufacturing and non-manufacturing figures will also be major drivers of the dollar this week. Fed chairman Ben Bernanke is due to make a speech on Wednesday evening and investors will be eager to hear from the horse’s mouth what is required in order to give tapering the go ahead. Comments made in this speech are likely to dominate dollar momentum at least until non-farm employment data and the unemployment rate are released. This will be a make or break week for greenback, and as much as the dollar could strengthen this week, failure to produce decent results could see it weaken. We maintain our view that the dollar will make another attempt to reduce recent losses yet we expect to see volatility as the week end approaches.
End of week forecast
GBP / EUR
|
1.1970
|
GBP / USD
|
1.6050
|
EUR / USD
|
1.3475
|
GBP / AUD
|
1.74
|
Sasha Nugent
Currency Analyst
Caxton FX
