The struggle continues for sterling
Not surprisingly, the pound found last week difficult against the euro. Despite beginning the week just above 1.18, trading in this pair was pretty uneventful and the euro managed to push the rate below 1.18. The challenge remains in the days ahead and with the sterling already struggling to maintain gains it is unlikely that this week will be any different. A light calendar will make it even more challenging and the only real significant piece of data being released is manufacturing production due to be published on Friday. The figure is expected to fall slightly below the last reading of 56.7 to 56.5 but another month in expansionary territory shouldn’t do the pound any harm. The likelihood that the GBPEUR rate will be able to breach 1.18 again look pretty slim this week, however any disappointment in eurozone numbers could encourage the rate a bit higher. The dollar may also attempt to reverse some losses this week although distorted data may prevent greenback from gaining much momentum.
A robust euro set to extend gains
The euro is still marching on against the dollar, continuing to fluctuate around the 1.38 level. Investors have maintained their bullish attitude towards the euro despite some softer data releases. Considering it will be a busy week for both the euro and dollar we may see more volatility and the door is still firmly open to see the euro continue to take advantage of greenback. The ECB seem unconcerned about recent euro strength and this is also encouraging the single currency’s momentum. How far the currency can go depends on how disappointing US data is this week. On sterling side of things it is pretty much the same story. Although the euro has managed to limit sterling gains, the currency is finding it much more difficult to build momentum against the pound than the dollar. Nevertheless, the ball is in the euro’s court this week and we could see this pressure building as the week unfolds.
The possibility of further dollar weakness remains
The dollar didn’t do too badly on Friday considering the kind of weakness it was subjected to during the week. There is a whole load of US data due and it is unlikely to do the currency any favours. The Federal Reserve is due to start their two-day meeting tomorrow, and is expected to see monetary policy remain on hold for another month. We doubt this result will encourage significant dollar weakness since most
investors have already priced this in, however disappointing data could encouraging the GBP/USD and EUR/USD rates higher. It will be a while until we see the dollar really regain control of things, and any upside surprise will almost certainly encourage a little more demand for the dollar. With limited UK releases, we expect greenback to hold up better against sterling, while greater downside risk remains against the euro.
End of week forecast
GBP / EUR
|
1.1670
|
GBP / USD
|
1.6260
|
EUR / USD
|
1.3900
|
GBP / AUD
|
1.6800
|
Sasha Nugent
Currency Analyst
