Sterling gets back on its feet
The pound looks to be stabilising after some weeks under pressure against most of its currency pairs. Demand for the euro remains fairly robust and will continue to trouble sterling as the pound attempts to push the GBPEUR rate back to levels we witnessed in September. Above-expected retail sales helped sterling to start the week in a solid position, however US and eurozone data will not make it easy for the pound to remain in control. CBI industrial order expectations and the Prelim GDP readings should do enough to keep the currency competitive. The BoE monetary policy minutes will be of interest, especially after MPC member Broadbent said the BoE has room to raise rates before borrowers get into great difficulties. Although Broadbent did stress that rates would only rise once the economy is in good health, any sign of slightly hawkish rhetoric in the monetary policy minutes will definitely be something to look out for.
A strong euro has room to get stronger
What could be regarded as an overvalued euro still has room to push further, especially against the dollar which has already seen the wrath of many other currencies. With EURUSD at levels above 1.3650, solid eurozone PMI data due late this week could definitely encourage the rate to move closer or even breach 1.37. There is, however, enough resistance at this level and with some delayed US fundamental data releases, we could see the euro need to put in a bit more work if 1.37 is to be reached.
It is not as clear cut against sterling, which is making a decent rebound from the weakness seen earlier this month. Nevertheless, the euro still has plenty of opportunity to direct both the GBP/EUR and EUR/USD rates this week, and it will definitely be interesting to see at what level EUR/USD goes too far, triggering profit-taking and the selloff we saw against sterling a few weeks back.
The US government raise the debt ceiling but the problem hasn’t gone away
Market movements are almost as if the US government is still in partial shutdown. The dollar remains weak and the effects of a prolonged debt solution continue to weigh on the greenback. The issue now is apparently the fact the debt deal agreed last week was only a short term deal, and it won’t be long until the US is back in the same situation. The hope is that by then, the democrats and republicans would have had enough time to debate and we won’t be seeing another partial shutdown. For now, though, the markets look to be on the doubtful side, and the struggle to see dollar strength emerge looks more like a lengthy one. It looks like the dollar will remain on the back foot for this week, and with the market’s finger hovering around the sell button, solid US figures are likely to only provide the currency with a little support.
End of week forecast
GBP / EUR
|
1.1800
|
GBP / USD
|
1.6120
|
EUR / USD
|
1.3640
|
GBP / AUD
|
1.6700
|
Sasha Nugent
Currency Analyst
