After sterling fell victim to a sell-off recently, last week’s manufacturing production figure surprised the market and gave investors another reason to get rid of some of their sterling holdings. Hopefully this week will be a better one for the pound with some significant releases due. Inflation figures will be released on Tuesday, and employment figures on Wednesday. If inflation meets the market’s expectation of 2.6%y/y, it will further justify the central bank’s position outlined in forward guidance. Employment figures will also be
watched carefully, and although no change in the unemployment rate is expected, lower claimant count figures will point to an improving economy. The last retail sales release disappointed, and this week we should see a much better number allowing sterling to make a decent comeback, to finish the week in a better position. It is likely that the euro will put up a fight, but provided UK figures can meet expectations, we should see the familiar upward trend return.
The Euro rides on
The euro has started this week still looking fairly robust, however the days ahead are looking more challenging for the single currency. ECB President Draghi has continued to shed a negative light on the progress of the eurozone, describing the recovery as fragile and uneven. Investors, as usual, seem to be drawing their own conclusions about the eurozone recovery as demand for the single currency remains fairly strong. This week sterling has ample opportunities to reverse the euro’s gains, although figures such as German ZEW Economic Sentiment may attempt to limit sterling’s potential. A number of ECB members have highlighted the problem of subdued inflation, and although the market is expecting an LTRO as the ECB’s next move, a less-than-forecast inflation figure would suggest a rate cut cannot be ruled out.
The US government has still failed to come to an agreement to lift the debt ceiling and although this continues to weigh on the dollar, some strong US figures this week will make it more difficult for the EUR/USD rate to reach 1.36 again.
A few days left, will the dollar default or overcome?
The deadline for the US government to raise the debt ceiling is fast approaching, with only four days to go. The markets may not be too worried just yet, however if an agreement is not reached soon we could begin to see the dollar re-emerge as a safe haven currency of choice. Until investors begin to park their funds in the dollar the greenback will be looking towards US data to provide the currency with some momentum. Considering US data has some catching up to do, it would be a good week for the little US releases we have to deliver some upside surprise. Until fears of a default really hit the market dollar weakness is likely to remain, with positive data only providing some short-term relief for the greenback.
End of week forecast
GBP / EUR
|
1.1825
|
GBP / USD
|
1.5925
|
EUR / USD
|
1.3575
|
GBP / AUD
|
1.6920
|
Sasha Nugent
Currency Analyst
