UK – The United Kingdom performed well over the last week,
as Services PMI came in positively on Tuesday, the Bank of England kept the
Asset Purchase Facility and the Official Bank Rate the same on Thursday, and
Manufacturing Production m/m came in positively on Friday. The positive
economic outlook has supported the pound against most currencies in the last
week or so, but depending on the data this week, we could see further gains.
The relevant data this week will be Mark Carney holding a press conference on
Wednesday, followed by a Bank of England Inflation Report. This will provide
the BoE’s projection for economic growth and inflation over the next 2 years. Aside
from this data, there will not be any major data releases, so the strength of
the pound will largely be determined by market trends and speculation until the
press conference on Wednesday.
EUR – The European Central bank decided to keep rates on
hold for the moment, which provided a momentary spike of strength for the Euro,
until Mario Draghi made a comment at the end of the press conference which
strongly hinted at ECB action at its June meeting. His comment was that “the
governing council is comfortable with acting next time”. This helped to restore
confidence in Draghi’s pledge from June 2012 to do “whatever it takes” to save
the Eurozone. However, this undermined the value of the Euro, which dropped
around a percent against the Pound and the Dollar. The Euro has started the
week out on the back foot, and with little data on the week to change this
momentum against the Euro, we could see further losses. The only high-impact
event coming out of the Eurozone this week will include German ZEW Economic
Sentiment on Tuesday. Aside from this, we expect the rate this week to be
driven very much by market sentiment.
USD – In the past week, the dollar index has made a
significant gain of around one percent due to some positive data over the last
week. There has been a reversal of the downward trend of dollar devaluation
since the middle of April, as short positions are beginning to unwind and
market sentiment is helping to reverse the losses that the dollar suffered.
Data from the US this week could help to support the dollar, as it is forecast
to come in more positively. The data will start with Core Retail Sales m/m and
Retail Sales m/m on Tuesday, PPI m/m on Wednesday, Core CPI m/m, Unemployment
Claims, and the Philly Fed manufacturing Index on Thursday, and finally,
Building Permits data and Preliminary University of Michigan Consumer Sentiment
data on Friday. With this busy week of US data, we could see the dollar go
either way, but the dollar is on the front foot for now.
AUD – The Australian dollar gained against sterling and most
other currencies last week, as there was much action from the Australian
Central bank. The market has speculated that the RBA will soon cut interest
rates, but the central bank kept interest rates at 2.50% at the last meeting,
lending strength to the AUD. The Unemployment rate also dropped last Thursday
in Australia, and the Monetary Policy report came out suggesting a more hawkish
tone than expected, that indicators of the economic outlook are “consistent
with the pace of growth”. This was a big week for the Australian dollar and it
comes into this week with momentum in its favour.
End of week forecast:
GBP/EUR – 1.2275
GBP/USD – 1.68
EUR/USD – 1.37
GBP/AUD – 1.7980
Nicholas Ebisch
Corporate Account Manager
Caxton FX
