Sterling had a good week last week as PMI figures gave the pound a solid footing to gain against its major currency pairs. Services PMI rose at the fastest pace in 16 years allowing sterling to direct the GBP/EUR rate higher. Industrial production figures also provided upside surprise and with a little help from the ECB, the GBP/EUR rate managed to breach 1.20. This week there is plenty of opportunity to see the pound build on current levels. UK inflation data is released and figures are expected to show inflation slowed for another month to 2.5%y/y. Unemployment data is also due and a continued improvement in claimant count numbers should encourage a stronger pound. The BoE will release its inflation report and this will be the main event for sterling. Optimism about the UK outlook has continued to increase and after the latest PMI numbers, we could see the Bank of England raise its projections for UK growth. More positive language from the central bank should be welcomed by the market, and we could see another push for 1.20 in the days ahead.
More euro weakness to come
The euro has already experienced some significant weakness after the ECB unexpectedly cut rates to 0.25%. Despite the large movements, we could see more weakness this week depending on the outcome of Eurozone GDP readings. Any downside surprise in these figures could possibly encourage more euro selling, and provide further justification for the ECB’s rate cut. Significant releases from the UK should also support a move to drive GBP/EUR higher, especially if the BoE raise their forecasts for UK growth. The euro has managed to reverse some losses so far today, with the EUR/USD rate climbing towards 1.34 once again, and GBP/EUR declining towards 1.19, but it is unlikely that this can be maintained in the days to come. With the window for a December taper ajar, the euro also remains vulnerable against the dollar.
Non- farm payrolls puts greenback back in the race
Non-farm payrolls came in significantly above expectations, and this has prompted some increased demand for the dollar. The figure highlighted that despite the deceleration in payrolls, the labour market is still in decent condition. Although this figure alone isn’t enough to warrant a December taper, it does open the door to the possibility which should be enough to keep the dollar in better condition going forward. Economic releases this week should also support a firmer dollar and encourage some optimism about the US economy.
On Thursday, Janet Yellen will face the Senate Banking Committee for a grilling before deciding whether to send her nomination for full Senate approval. While Yellen only needs a handful of votes from Republicans in order to pass necessary procedures when her nomination reaches the Senate, Republicans will not hesitate to scrutinise a policy which they feel is building up future inflationary pressures.
End of week forecast
GBP / EUR
|
1.1980
|
GBP / USD
|
1.5950
|
EUR / USD
|
1.3350
|
GBP / AUD
|
1.7100
|
Sasha Nugent
Currency Analyst
