Cable has peaked out at 1.69, at what seems to be a very high level, but that’s what analysts were saying at 1.61. Eurozone inflation is still the main concern, and with an ECB meeting this next week, we may see some action with the euro.

Global Equity markets have rallied and are approaching record highs yet again going into this week with positive sentiment coming from a slightly improved Eurozone inflation figure, positive non-farm payrolls and the US unemployment rate coming down, Dovish tones from the US Federal Reserve, and the UK economy on a roll with consistently positive economic data. These factors have managed to largely override the uncertainty that is affecting Ukraine and many currency pairings have benefited from the positive data, but the dollar continues to struggle.

UK – Sterling has performed very well in the previous week. The GDP figure came in just below target, but still positive at 0.8% q/q, and manufacturing data was positive on Thursday. The UK economic recovery is gaining momentum, but concern has been expressed by Bank of England policymakers that the rapid recovery of the housing market could be another housing bubble in the making.  The data to watch for this week will be the Official Bank Rate and Asset Purchase Facility, and Manufacturing Production m/m. Things are looking up for the Pound, and there seems to be very little chance that this trend will be reversed.

US – The US recorded a new record low unemployment rate this month at 6.3%, down from 6.7% last month. Also, the US non-farm employment change figures came in very strongly, signalling a recovery in the US labour force. This has helped the Dollar improve against most currencies, as the Dollar suffered earlier in the week with a dismal advance GDP q/q figure this last Tuesday, which was down to 0.1% from 2.6% previously. This week, important US data will include Yellen testifying before the Joint Economic Committee of Congress on Wednesday, and US unemployment claims data on Thursday. With mixed data this week, the dollar is looking for a direction to commit to, and next week’s data may help determine its direction more soundly.

EUR – Analysts are forecasting that the ECB most likely will defer action. Speculation has built before every ECB meeting  that action will be taken, in the form of further interest rate cuts or a new structure for Quantitative Easing, but so far the latest change was last November when there was a surprise interest rate cut. Inflation has picked up in April, but only marginally, from 0.5 to 0.7 percent. The market has begun the week with momentum behind the Euro as analysts are prediction that the ECB will defer possible action this time, and shift market expectation until the June meeting. Other data has been coming in on target, but Eurozone economic growth is still well below policymakers’ expectations. Only time will tell what the ECB has in store, and we will find out for sure this week on Thursday.

End of week forecasts

GBP/EUR – 1.2125

GBP/USD – 1.70

EUR/USD – 1.3950

GBP/AUD – 1.8150

Nicholas Ebisch

Corporate Account Manager

Caxton FX