Can sterling remain in favour?
For yet another week sterling has remained fairly robust, although Eurozone inflation data encouraged some lower levels in GBP/EUR. In the days ahead, opportunity to pare back losses and we expect levels in cable remain elevated as the pound capitalises on weak US data. PMI data is back in focus and after the last round of slightly below expected figures, solid numbers here should keep the pound in demand. What will be key is to see growth in both the manufacturing and construction sectors continue to suggest the economy is gradually rebalancing. The BoE will meet again and announce their interest rate decision which we suspect will not result in much market movement. The outlook for the UK remains positive and as long as UK data continues to display this picture, it is more than likely that sterling buyers will continue to encourage a stronger pound.
ECB to remain on hold after eurozone data
The euro has started this week on a high, and it is unlikely that the ECB will pull the rug just yet. Eurozone inflation rose 0.8% y/y easing the pressure off the ECB and dampening expectations that the central bank will take action at their meeting later on this week. An above expected number hasn’t exactly removed the concern just yet. The reading was only a flash estimate which means there is always room for a downward revision. One thing that seems to be clear is there’s not sufficient evidence to warrant a change in policy from the ECB, and this should keep the euro well supported. Other figures such as retail sales, services PMI data and German factory orders could also support the single currency, although it will be difficult for the euro to advance further against sterling. With the dollar on the back foot and plenty of event risk ahead, disappointing US data could fuel a move further through 1.38 this week.
US non-farm payrolls is one of the most influential data releases and after two readings below estimates, this particular reading will be scrutinised. Although remarks from Janet Yellen last week suggest that softer data may not necessarily warrant a pause in tapering, a poor release on Friday may actually change the view of Chair Yellen. Ahead of the release a number of US figures will be watched carefully, as a number of data releases over the past month were affected by adverse weather conditions. Some more positive releases this week should see the greenback in better form, especially if payrolls provide some upside surprise.
The greenback may also receive a lift on the back of tensions in Ukraine. Russia has deployed military forces into Ukraine and they have now taken over army bases in Crimea. As the situation escalates and the West urge the Russian President Putin to withdraw troops, investors move towards safe havens currencies as the prospect of war increases. This should provide the greenback with a little more support, although the extra momentum will not limit the downside if the employment report disappoints.
End of week forecast
GBP / EUR
|
1.2170
|
GBP / USD
|
1.6650
|
EUR / USD
|
1.3740
|
GBP / AUD
|
1.87
|
Sasha Nugent
Currency Analyst
Caxton FX
Caxton FX
