Caxton FX Weekly Report: A week in the back seat

A week in the back seat

The pound has come under pressure so far this week, and the struggle for sterling to maintain levels above 1.20 has resurfaced, at least in the short term. A quiet week on the UK data front leaves the pound vulnerable against the euro and dollar, although retail sales figures due on Friday may provide the market with a reason to put their money back into the pound. With UK inflation now on target, the Bank of England have even more room to maintain accommodative monetary policy, dampening expectations of a rate increase any time soon. Economic indicators continue to suggest that recent growth can be sustained and this should act as a cushion limiting potential losses. The threat of levels below 1.20 remain, especially if Eurozone inflation figures provide upside surprise, although the pound is looking well supported this week. Sterling has been softer against the dollar which has managed to recover after last week’s employment report. With levels now above 1.64, there is still plenty of room on the downside and we expect sterling to remain on the back foot, with some potential gains later on in the week.

A firmer euro but for how long

Although the euro remains in decent shape, we doubt the single currency has enough support in order to prevent higher levels going forward. With market participants closely watching inflation figures from both the UK and the Eurozone, we are likely to see a fair bit of volatility in this pairing. Any upside surprise from the Eurozone reading could easily spark some more downward movement in the GBPEUR rate.

The euro has had a more difficult time against the greenback, and despite the non-farm payrolls figure coming in significantly below estimates, the dollar seems to be dictating play this week. The stronger dollar has prevented levels of 1.37, whilst the single currency has shown its resilience, keeping levels above 1.36. The inflation figure will be the key driver for the euro this week and it is likely we will see some volatility on the back of this release.

The dollar shakes off the non-farm payroll releases
The greenback failed to start the week in the best condition as the US non-farm payrolls encouraged investors to sell the dollar and drive GBP/USD to 1.65. Those gains were quickly reversed, and the market has put last week’s news to the side with full focus on the jam packed week for US data. Retail sales have got the ball rolling and with these figures beating estimates, the greenback gained a little ground. The Beige Book, Philly Fed Manufacturing Index, and Preliminary UoM Consumer Sentiment will all be released this week. Dovish Fed members have raised concern about issue of low inflation, and so US inflation numbers due on Thursday will also be a focal point.

With little to support both the euro and sterling, the dollar seems to be in the
better position to gain. The market has ample opportunity to move on the back of
solid US figures, but any reading which disappoints will leave the window open for
the euro and sterling to take advantage.

End of week forecast

GBP / EUR	1.2100
GBP / USD	1.6350
EUR / USD	1.3600
GBP / AUD	1.8500

Sasha Nugent

Currency Analyst

Caxton FX

The Outlook for Sterling in 2014

The pound has started the year on a high, UK economic activity surprisingly picked up allowing growth to accelerate, ultimately improving sentiment. In particular, the labour market improved as the number unemployed decreased, alongside those claiming job related benefits. Concern about above target inflation faded as price pressures eased towards the Bank of England target of 2% y/y. Caxton FX is anticipating the GBP/EUR to continue on its upward trend to finish the year around the €1.26 level. Despite the surprising strength of the pound, we expect the dollar will rebound and drive the rate towards $1.53 by the end of the year.

GBP/EUR
The euro continues to be reasonably strong against the pound and the battle for sterling to sustain gains against the single currency continues. Despite the increased positivity about the UK economic environment, the pound is still struggling to really drive the rate clear of the 1.20 mark. Above target inflation is no longer a concern, and this has dampened expectations of a rate increase from the Bank of England limiting further gains for the pound. On this basis, we do not expect the central bank to raise rates this year, however we do expect the UK recovery to continue, potentially building the case for a tightening of policy early next year.

The issue of deflation may become a hot topic, especially during a time when many nations are suffering from deflationary pressures. Although UK inflation is on target for the first time in over 4 years, this could easily turn into a situation of disinflation. The market will definitely be keeping an eye on this as the year unfolds.

In the eurozone, inflation is definitely a hot topic, and although the ECB are confident that price pressures are well anchored to their medium to long term expectations, the concern remains. Nevertheless the eurozone is making progress and we expect this to continue. The outcome of the stress tests and asset quality reviews of European banks will also be extremely interesting, not to mention the effect these results will have on sentiment.

The outlook for the UK outperforms that of the eurozone and therefore we expect the pound to edge the GBP/EUR rate higher this year.

GBP/USD

The pound is hanging on to levels above 1.60, but we doubt this can be sustained in the months ahead. Despite the announcement of tapering failing to have any significant effect on the exchange rate, going forward we may see the effects of this begin to show. A mere $10bn reduction in asset purchases is hardly anything significant, but as the US economy picks up, the labour market improves, and inflation rises, we should see the Fed begin to reduce purchases by a more considerable amount supporting the dollar.

Optimism about the UK recovery may limit dollar gains, especially in the second half of the year when talk about a rate increase in 2015 is likely to resurface. How inflation develops in this period will also be important, but with both nations enjoying solid growth, attention will be on which central bank looks closer to tightening monetary policy sooner. The Federal Reserve has reiterated the fact that the wind down of purchases is not a tightening of monetary policy, and with the Bank of England looking just as committed to keeping rates low, we doubt we will see any tightening of policy from either central bank this year.

With worries about the US government debt ceiling diminishing, the tapering topic should keep the dollar on the front foot, and with the BoE also raising a little concern regarding the strength of the pound, we expect sterling to weaken in the months ahead.

January 2014 Currency Report: Sterling regroups in a bid to maintain momentum

Sterling momentum strengthened last month after strong employment data encouraged sterling buyers to resurface. The pound managed to get the upper hand on the euro, whilst the dollar struggled to drive the GBP/USD rate downwards, despite the Fed’s tapering decision. As we enter the New Year, the same factors will influence the pound’s strength and the debate about when the BoE could raise interest rates will continue. The market’s eye will remain fixed on the improvements in the labour market as well as price pressures.

There are still plenty of questions regarding the eurozone, and although the region is showing signs of progress, the issue of deflation and a buoyant euro remains. The ECB have maintained their dovish stance in the last few months and have reiterated their commitment to price stability, claiming the central bank have various tools to combat low inflation. We are yet to know what these tools are, and going in to January, the market will be paying close attention to any language from the ECB which may shed some light on the central bank’s ammunition.
As we approach the next US debt ceiling, some of the pressure on the government has faded amid the agreement in spending levels reached by Democratic and Republican negotiators. Although this agreement avoids a shutdown occurring this month it has not yet been passed through congress and does not increase the US debt limit, leaving the potential for budget crisis still open. Tapering has finally begun, with the Federal
Reserve trimming $10bn from asset purchases reducing the total to $75bn a month. The Fed has managed to convince the market that tapering is not tightening and updated their forward guidance claiming that interest rates will remain low even after the unemployment rate has reached 6.5%.

The year begins on a positive note

With UK economic data still impressing, this month the market is looking for signs to help gauge how sustainable the recovery is. The outlook for the nation is pretty much unchanged and although the last inflation reading showed inflation fell closer to the BoE’s 2% y/y target, there is still a possibility we could see a rate increase in 2015. We know from the latest inflation report, that slack in the economy needs to be absorbed and business investment needs to pick up. The market seems to have pushed these details to the side for the time being and focus remains on the labour market as well as price pressures. As a result, we doubt things will be much different from last month. Language used by the monetary policy committee will be monitored carefully. Last month we witnessed a sterling sell off after comments from BoE member Weale suggested the central bank will maintain loose monetary policy even after the 7% unemployment threshold has been reached. This triggered sterling weakness and if more dovish language is expressed by the BoE we doubt the market will hesitate when unwinding sterling long positions. It will be a difficult month ahead for sterling. With tapering talk limiting potential gains against the dollar and euro investors still preventing the pound from holding on to levels above 1.20, a lot more is needed to get sterling to make any meaningful rebound.

GBP/EUR

Euro pressure eases a little

Towards the end of December we saw euro strength re- emerge and combined with lower UK inflation force the rate from levels above 1.21 back towards 1.18. After the ECB’s last rate cut, eurozone inflation rose to 0.9% y/y, providing the euro with some short-term relief. The ECB’s lack of concern about the currency’s strength encouraged the market to continue to support the euro, and it is unlikely that we will see any change in the ECB’s attitude towards the exchange rate this month. Whilst they have made it clear that targeting the exchange rate is not an option, they have withheld details about what tools are available to combat low inflation. In a number of press conferences and speeches ECB President Draghi has said that the bank expects inflation to remain low for a prolonged period and if downside risks materialise, the bank is ready to take action. There have been whispers that negative deposit rates may be one of the many weapons the ECB has at their disposal, and this month we may get more of an idea about what the central bank has in store. The prospect of another round of cheap loans for European banks may also creep back into focus. The market believes another round of LTROs is on the table, however the central bank are yet to provide any clarity on the likelihood of this happening any time soon. Investors will be listening attentively to ECB members’ comments for clues on the next likely move from the ECB.

There are signs that sterling’s strength has become more sustainable and so we expect the pound to

recover.

GBP/USD

We begin the new year with $10bn less stimulus

There is plenty going on in the US this month to keep volatility in the GBP/USD rate alive. Instead of buying $85bn worth of assets, the Federal Reserve will purchase $75bn in an attempt to wind down the quantitative easing program. The reaction was fairly muted as the central bank managed to convince the market that a reduction in stimulus is not a tightening of policy. The central bank also adjusted its forward guidance, stating that loose monetary policy will remain even after the unemployment rate has reached 6.5%.

Ben Bernanke’s term as Chairman of the Federal Reserve will come to an end this month, paving the way for Janet Yellen to take up the post. Despite Yellen being considered a dove, she supported the move to kick start tapering this month and this suggests she may be less dovish than previously thought. She obtained the Senate’s approval (56-26) to become the first female Chief in the Fed’s 100 year history in last night’s vote.

The issue regarding the US debt ceiling will resurface this month, however, with Republican and Democratic negotiators reaching a deal on spending levels, the risk of a government default has diminished. The deal which is small in size should prevent a shutdown this month if it is approved by Congress, but new borrowings will also have to be passed if a budget crisis is to be avoided.

GBP/EUR: 1.2130
GBP/USD: 1.6280
EUR/USD: 1.3420 

Finally the Fed reduces stimulus, but this failed to spark much reaction

After months of speculation regarding the likely timing of tapering, it finally came, with the Fed withdrawing $10bn in stimulus which is set to begin next month. Although not many economists predicted such a move, the announcement failed to trigger any significant movement, and both equities and emerging markets weathered the storm quite well.

The Fed has successfully convinced the market that tapering should not be confused with a tightening of policy. An adjustment to forward guidance reinforced this point, with the bank stating that loose monetary policy will remain, even after unemployment has reached 6.5%. A mere $10bn reduction in stimulus is hardly substantial and this may be part of the reason why equity and emerging markets appear unmoved by the news.

The day that the markets had been dreading seemed almost like a non event. Some might argue that this is a positive thing. We witnessed the effects taper talk had on the emerging market currencies with the Indian Rupee being one of the worst victims of a selloff. This suggests that all the speculation and the delay between September and December prepared the markets well for what was coming, unlike last summer when the markets were caught off guard.

Sasha Nugent

Currency Analyst

Caxton FX

What is more important? Rate increases or price stability?

It has now become common knowledge that the UK recovery is taking hold, and the next hurdle for the economy is to ensure this recovery can be sustained. The BoE have outlined in their forward guidance, that unless any of the thresholds are breached, they will maintain their current dovish stance, and re-evaluate policy once the unemployment rate has reached 7%.

Since the introduction of forward guidance, the markets have had their eye on the inflation and unemployment rate looking for signs to gauge the BoE’s next policy move. The labour market has improved faster than projected and inflation has also eased more quickly towards the BoE’s target of 2%y/y. In situations where unemployment figures surprised the market to the upside, demand for sterling increased, strengthening the pound. When lower inflation numbers have been revealed, sterling has taken a hit, as this dampened investor’s expectations of a rate increase in 2015.

Despite criticism, it is looking more like the central bank will not be forced to raise interest rates. Loose monetary policy has helped to support the recovery which continues to gain traction, all whilst price pressures have eased, now only 0.1% away from the target. Domestic demand is likely to strengthen, resulting in an upward pressure on inflation, but for the time being the BoE now has more room to maintain a policy which seems to be working.

A few months ago the market believed that inflation would remain above target forcing the central bank to take action and raise interest rates. With inflation easing, the BoE is no longer under pressure to do so, and the market seems to be forgetting that despite the dampened expectations of a rate hike, inflation that is in line with the central bank’s target is a good thing. Yesterday CPI unexpectedly came in below expected at 2.1%y/y and this immediately resulted in sterling weakness. What we saw was the pound being penalised for inflation trending towards the central bank’s target.

Sasha Nugent

Currency Analyst

Caxton FX

Caxton FX Weekly Report: Fed in Focus

Another week of vulnerability for sterling

Sterling looked less robust last week as a firmer euro managed to direct the rate below 1.19, and finally investors began to respond towards solid US data. This week, inflation and unemployment figures will be released and after comments from BoE member Weale regarding softer inflation, this figure will be watched carefully. Price pressures have eased significantly, and this has dampened expectations that the central bank will need to raise rates soon. Despite the pick-up in economic activity, lower inflation will allow the central bank to fulfil their commitment to maintain low interest rates in order to help absorb slack in the economy. Unemployment has been improving faster than the BoE has predicted and claimant count figures on Wednesday should also support the brighter labour market in the UK. The Bank of England will release the monetary policy minutes from their last meeting, and this should shed some more light on whether the MPC’s view about the UK has changed since the inflation report. Although it is unlikely that the MPC’s stance has changed dramatically, any significant comments here will most probably cause some volatility. Other figures such as retail sales and current account data may also offer sterling some support this week, however it will not be easy to rebound considering the heavy calendar for the eurozone and the Federal Reserve monetary policy meeting this week.

The euro bulls return

Today’s Eurozone PMI figures kick started a week packed with eurozone data. With the bullish euro investors managing to dictate trading in both EUR/USD and GBP/EUR, it doesn’t seem like things will be any different for sterling this week. The euro is still preventing the pound from driving the rate back up to 1.19 and we doubt the market will hesitate on putting more money into the euro if data provides upside surprise. It will most probably be more difficult for the euro to gain against the dollar despite some solid numbers. With the Federal Reserve’s monetary policy announcement on Wednesday, we may begin to see the single currency suffer at the hand of some investor repositioning just in case the Fed decide to surprise us with the beginning of tapering. There is more opportunity for the euro to gain against sterling this week, however if the Fed hold of tapering this month, this could provide the euro with another opportunity to drive the EUR/USD rate through 1.38.

All eyes on the Fed meeting

We are beginning to see signs that the market has begun to pay more attention to the more positive US figures we have seen of late. With the Federal Reserve monetary policy announcement only days away, US data will play an even more significant role in encouraging investors to reposition their portfolios towards the dollar. Although the case for a December taper has been building, many economists believe the Fed will begin to reduce stimulus in January. Therefore, if the Fed refrains from tapering this month, we doubt the market will respond by selling the dollar as aggressively as they did in September. It is likely that the greenback will experience some temporary weakness, however investors will eventually begin to prepare for a January taper. This is a fundamental week for the dollar and direction of both EUR/USD and GBP/USD hangs in the balance of the Federal Reserve announcement on Wednesday.

End of week forecast

GBP / EUR	1.1855
GBP / USD	1.6250
EUR / USD	1.3720
GBP / AUD	1.8350

Sasha Nugent

Currency Analyst

Caxton FX

The effects of a strong Aussie begin to show

For months now the RBA have highlighted their concern about a strong Australian dollar and we are now seeing the effect this is having on the Australian economy.  The stronger Australian dollar has caused manufacturing costs for car manufacturer General Motors to rise, and this coupled with a small domestic market encouraged the firm to stop producing cars in Australia from 2017. The US car producer Ford announced that it would stop making cars in Australia earlier on this year, and the new move from General Motors now poses a threat to the car industry which has increased the importance of retaining Toyota’s business.

Prime Minister Tony Abbott is holding talks with car producer Toyota in an attempt to convince the firm to continue to manufacture motors in Australia and prevent potentially thousands of job losses. This emphasizes the strain a strong currency is having on business costs, making foreign made cars more appealing to consumers. After the numerous failed attempts at talking down the Australian dollar, comments from RBA Governor Stevens regarding intervention finally got the ball rolling. More Aussie weakness is needed, however with the GBPAUD rate currently at 1.83, the rate is moving in the right direction.

Sasha Nugent

Currency Analyst

Caxton FX

What to take from Chancellor Osborne’s Autumn Statement

This morning the Chancellor George Osborne presented his Autumn statement and emphasised that the “economic plan is working but the job is not done”. The chancellor highlighted the impressive improvements in growth, unemployment, inflation pressures and forecasts which suggest these developments will continue. The key points are below:

UK Growth

• The Office of Budget Responsibility (OBR) now project growth this year will be 1.4%, raised from an expected 0.6% in March. 
• Next year’s forecast has also been revised upwards to 2.4% from 1.8%, with the following four years growth expected to be 2.2%, 2.6% 2.7% and 2.7%. 
• The OBR have shed light on the risks to growth, claiming the eurozone will shrink 0.4% this year. 
• Unemployment is expected to fall to 7% in 2015 and 5.6% by 2018, with an expected 400k additional jobs. 
• Private sector job creation will reach 3.1m by 2019 according to estimates. 

Public Finances 

• OBR have revised underlying public sector net borrowing down to 6.8% down from 7.5%, dropping to 5.6% next year, and predicts a small budget surplus by 2018. 
• The Borrowing forecast is down by £73bn in the next few years, with an estimated £111bn being borrowed this year and £96bn next year. 
• The chancellor has introduced a cap on welfare spending, however this excludes pensions. 
• There will be an updated charter of budget responsibility to be presented to the parliament next year. 
• Pensions will rise by £2.95 a week from next April, and the state pension age will rise to 68 in the mid-2030s, up to 69 in the mid-2040s. 

Taxes

• From 2015 capital gains tax on home purchases/sales from non-residence will be introduced. 
• The Bank Levy will increase to 0.156%, raising an additional £2.7bn next year and £2.9bn a year for 2015-16. 
• There will be further tax breaks for shale gas, with the tax rate being halved on early profits. 
• Up to £1000 tax allowance will be transferable between married couples. 
• Jobs tax to be abolished for people aged under 21. 

Businesses

• Rate relief scheme for small business will be extended for another year. 
• There will be a cap increase on business rates at 2% from next year. 

Living standards

• The freeze on fuel duty will continue, meaning next year’s planned rise will be cancelled. 
• Green levies on energy bills will be rolled back, therefore cutting £50 from bill increases. 
• Average rail prices will be kept constant in real terms.

Sasha Nugent

Currency Analyst

Caxton FX

December 2013 Currency Report: Sterling bulls put the pound in charge

Sterling has made quite a comeback in the last month, exceeding levels we saw in September when UK data was consistently providing upside surprise. The BoE Inflation Report released a few weeks ago increased demand for sterling as the prospects of a rate increase was pushed forward to 2015. This coupled with last month’s Services PMI figure which showed the sector grew at the fastest pace in 16 years encouraged the sterling bulls to shoot the GBP/EUR rate through to 1.21, whilst the GBP/USD has breached 1.64.

After the ECB unexpectedly cut rates last month in response to lower inflation figures, the euro has been on the back foot against both sterling and the dollar. Recently there has also been talk about negative deposit rates and whether the central bank will ease monetary policy further. Although the ECB still believe inflation is still well anchored to their medium to long term expectations, the possibility of these moves will limit a recovery for the euro.

The last US non-farm payroll figure reignited the tapering debate and opened a small window for a December taper. If the payrolls figure due this week follows suit, we might just see the Federal Reserve begin to cut back asset purchases this month. For now though, the market requires some significant positive US data in order to support the dollar and gauge the likely timing of the next policy move from the Fed.

Sterling regains ground

This month sterling has definitely kick started things in a better position and there is more hope that the pound may be able to retain this momentum against the euro in the coming weeks. Last month’s Services PMI number got the ball rolling, with the figure rising to 62.5, the sharpest increase in 16 years. The level of new business rose at record pace, and this encouraged investors to begin to buy sterling once again. The latest Manufacturing PMI also beat estimates and support continues to build for the pounds. The key driver behind sterling’s recent gains has been the BoE inflation report which expressed optimism about the UK recovery and opened the possibility of a rate rise in 2015. The monetary policy committee believe that unemployment
will reach 7% by the end of 2015, and that despite a surprisingly lower inflation number, price pressure in the medium term are still well anchored. The market has kept its focus on the possibility of a rate hike in 2015 and this has been the backbone of sterling’s momentum. It wasn’t too long ago when we saw cable breach 1.63 and the GBPEUR rate test the barrier of 1.20. PMI data this week will help to set the trend for sterling strength this month, and together with some strong unemployment data, the pound should be well supported.

GBP/EUR

More dovish talk from the ECB should keep sterling in control of GBPEUR

The ECB certainly had a hand in recent euro weakness. Eurozone inflation slowed to 0.7% y/y and this prompted an unexpected rate cut from the ECB. This move set the tone for the euro and it is unlikely that the euro will be making any major recovery soon. It recently came to light that the ECB discussed negative deposit rates, and although ECB President Draghi was quick to express that those talks had gone no further, ECB’s Hansson did say that the central bank still has room for further easing. The market seems to have adjusted to the prospect of looser monetary policy from the ECB however as long as this possibility remains those bearish euro investors will keep their finger over the sell button. The ECB have also said that the medium to long term inflation expectations are well anchored and based on this we doubt we will see another rate cut from the central bank when they meet this week.

A much better set of economic data could benefit the euro this month. Last week we saw German IFO data provided the euro with some temporary relief, highlighting investors thirst for such positive numbers. With the euro set to remain on the weaker side for a while yet, upside surprise on economic figures could provide the single currency with pockets of opportunity to build momentum and improve sentiment about the economic climate. Considering German Ifo was enough to push EURUSD back above 1.35, there are still some market participants ready to put their money in the euro when given a reason to. For now though, the UK economic backdrop is looking much more stable and with continued talk of loose monetary policy, coupled with uninspiring data, sterling looks set to control this rate in the month ahead.

GBP/USD

To taper or not to taper?

The tapering debate has been going on for months now, and after the Federal shutdown dampened expectations it could happen this year, the last employment report reopened the possibility of a December taper. We know that the Federal Reserve require more evidence of a strong US recovery in order to warrant a withdrawal of stimulus and therefore the employment report will be (as usual) a focal point, and will most probably set the trend for the month. After the last non-farm payrolls release surprised to the upside, any figure in line, or above estimates should increase speculation about the possibility of a reduction in stimulus beginning this month.

In recent sessions we have seen the dollar take a beating after US figures produced some mixed results. At this moment in time, investors are penalising the dollar for data that isn’t meeting expectations and also for the fact that the timing of tapering continues to be pushed back. We may see more of this in December, especially if non-farm payrolls disappoint. Looks like another month of data watch for the dollar.

The Fed chair nomination vote will also grab the market’s attention, and last month nominee Janet Yellen was questioned by the Senate Banking Committee. With the majority of the Senate democrats, Yellen only needs a few votes from republicans to secure her position as Chairwoman of the Federal Reserve. If the Fed decide to keep policy on hold for another month (which is likely), the market will then look to the end of the first quarter for the Fed to begin cutting back their asset purchases.


GBP/EUR: 1.2150
GBP/USD: 1.6210
EUR/USD: 1.3400

Sasha Nugent
Currency Analyst
Caxton FX

 

Caxton FX Weekly Report: The pound directs GBP/USD and GBP/EUR higher

The Bullish Sterling Investors surface

Last week the pound showed its strength, and sent the GBPUSD rate straight through 1.63 after the second GDP estimate prompted investors to buying the pound. This strength has continued so far this week, and maintaining this in current sessions will partly depend on the performance of Construction and Services PMI figures due in the next few days. Another solid set of numbers here should encourage more sterling momentum and will put increasing pressure on both the euro and the dollar. GBP/EUR is looking more comfortable around the 1.2090 level and after sterling dipped above 1.21 we could see these levels remain in the days ahead. The Bank of England will announce its rate decision on Thursday and it is unlikely that the central bank will alter monetary policy. At the moment it looks like it could be another week for the pound to extend recent gains.

What tools will the ECB pull out next?

After all the talk about the next possible policy move from the ECB, Thursday the ECB monetary committee will meet and they will announce their interest rate decision. After last month’s surprise cut, it is unlikely we will see any change in the interest rate when they meet this week, however what will be of more interest, is the press conference to follow. The issue of low excess liquidity for European banks remain, and the mystery of whether the central bank will opt for another LTRO remains. There has also been some talk suggesting that maybe the ECB should consider quantitative easing. A tool that the central bank has avoided and the BoE and Federal Reserve have embraced. The press conference should provide some clarity on these topics and if none are on the horizon, we should see some of the pressure on the euro ease.

Services PMI data will be released this week and could offer the euro some short term relief after a period of weakness. However with sterling looking stronger it may not be able to recover as much as we have seen previously.

It’s that non-farm payroll time again

With GBPUSD levels now trading around 1.64, it is evident that dollar weakness will remain as long as tapering delays continue. US data last week, such as unemployment claims, has failed to do enough much for dollar strength and so market focus turns to the employment report due on Friday. The last non-farm payroll figure surprised the market and stirred speculation that the Fed could possibly begin to taper back purchases this month. This makes Friday’s figure ever more important, and a reading in line or above expectations may result in some investor repositioning. Ahead of the employment report on Friday, there is more than enough data to keep the market busy such as ISM manufacturing and non-manufacturing PMI, preliminary GDP q/q and unemployment claims. Although these numbers are unlikely to trigger significant dollar momentum, strong data could put the dollar in a much better position ahead of the jobs report on Friday.

Optimism regarding the Chinese economy has also affected the dollar’s strength. Demand for safe haven currencies such as the dollar has fallen amid signs of a pick- up in global manufacturing. It is unlikely this influence will last too long, however in the short-term, this will contribute to the greenback’s struggle to
regain ground.

End of week forecast

GBP / EUR	1.2120
GBP / USD	1.6300
EUR / USD	1.3500
GBP / AUD	1.8100

Sasha Nugent 

Currency Analyst

Caxton FX