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
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