Headlines
- Stock Volatility to Dominate Currency Trade this Week
- Sterling Predicted to Weaken on EU Referendum Uncertainty
- Euro Forecast to Advance on Carry Trades
- US Dollar to Edge Lower on Euro Strength
GBP/EUR – Pound Steadies after BoE Rate Decision
The Pound Sterling to Euro (GBP/EUR) exchange rate was trending narrowly on Thursday following the Bank of England (BoE) interest rate decision, but many analysts forecast further Sterling weakness over the coming week as EU referendum uncertainty continues to weigh. Whilst the Bank of England’s Monetary Policy Committee (MPC) did not change the policy outlook, as had been expected, some investors were surprised to see that chief hawk Ian McCafferty continued to call for an immediate hike. This saw increased demand for the Pound as many had expected all nine policymakers to unanimously reject policy changes at this juncture. Next week is likely to see considerable Sterling volatility in response to Tuesday’s UK Consumer Price data. Weak inflation has been one of the main stumbling blocks for rate increases, so any positive results will likely be met with significant Sterling gains.
GBP/USD – ‘Cable’ Static ahead of US Advance Retail Sales and Consumer Confidence Data
The Pound Sterling to US Dollar (GBP/USD) exchange rate was also trending narrowly following the BoE rate decision. The US Dollar is holding a relatively strong position, however, after a week of significant demand for safe-haven assets amid fears regarding turmoil in equity markets and China’s economic struggles. Friday’s US data, which includes Advance Retail Sales and University of Michigan Consumer Confidence reports, will be likely to provoke US Dollar volatility. There will be a number of influential data publications pertaining to the US next week with the potential to stimulate changes for the Dollar. The most significant of which will be Wednesday’s Consumer Price data as it will show whether inflation has improved since the Federal Reserve tightened monetary policy.
USD/GBP – Predicted to Advance on ‘Brexit’ Uncertainty
Although domestic data is likely to have a marked impact on both the Pound and the US Dollar next week, many economists predict that the Pound will soften against the US Dollar irrespective of how the ecostats print. This is due to uncertainty regarding the UK’s EU referendum, both in terms of the timing of the vote and the outcome. In addition, with equity markets shaken in response to low oil prices there is a high chance that safe-haven demand will dominate trade next week.
EUR/USD – Euro Steady against the US Dollar, Recovers from CPI Flop
Since the turn of the year the Euro has outperformed most of its peers thanks to demand for carry trades. Today saw the single currency hold a position of strength after German Gross Domestic Product met with expectations of 1.7% growth on the year in 2015. Next week will see significant Euro volatility with the European Central Bank (ECB) interest rate decision due next Thursday. Minutes from the most recent policy meeting revealed that some members of the committee argued for a deeper rate cut, so there is the possibility that the ECB could opt to ease policy further next week. However, the recent strength of the Euro and improvement in sectoral growth should allow time for policymakers to wait to see if the current stimulus programme will have a stronger impact.