Good Morning. Sterling rose against the Euro and US Dollar on Friday, but trimmed its gains as the U.S. currency surged after surprisingly strong jobs data. Today, we’ll have a quick look at where rates went last week and as usual have a detailed look at the weeks data releases that may affect exchange rates.
First, we’ll watch our Director of Foreign exchange on CNBC recently, talking about the pound strength and the US Dollar safe haven status, which is what’s driving it. If you cannot view the video automatically, watch it on YouTube here.
Last Weeks Trading
The main reason for the pounds gains towards the ends of last week were the better than expected jobs data. As Adam mentioned on CNBC, earlier in the year the dollar enjoyed safe haven status. This meant that investors flocked to the USD and strengthened the currency. Now the world is exiting recession, investors are unwinding these positions, and as a result the US Dollar is weakening and the pound benefited.
UK Bank Bonuses
Also to watch this week is news that UK Bank Bonuses may be capped. This is a concern, as finance is our biggest export. If the UK is no longer an attractive place to do business for the banking sector, we could lose out to Switzerland and EU countries that have more favourable rules.
The government have itself said this is little to do with finance, and more to do with politics. The government want to jump on the bandwagon of the mood in the country at the moment, and so in the long run we could damage our biggest export for the sake of a few political points in the run up to the election.
Robert Peston the BBC business editor talked about the issue on Radio 4 this morning, in his own………… irritating………….. waaaaaaaaaaaaaay. You can read his blog here, and his written word is certainly better than listening to him speak. If you don’t know what I mean, click here.
This Weeks Data
For the UK, we have the UK pre budgut report. There are concerns that this will highlight the levels of UK debt, which are reported to be £40k for every UK household. The measures outlined to combat this could cause weakness for Sterling.
We also have Retail Sales, Consumer Confidence, industrial and Manufacturing production and an Interest Rate Decision by the Bank of England, where we expect rates to be left on hold again at 0.5%. If the BoE is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the GBP.
Likewise, if the BoE has a dovish view on the UK economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish. We will also look to any further signals about the end of Quantitative Easing. So, this data could well cause further volatility for Sterling.
For the EU, we have a speech by the ECB president following their decision to keep rates on hold last week. He gives a press conference as to how the ECB observes the current European economy and the value of EUR. His comments may determine a short-term positive or negative trend. We also have the ECB monthly report that contains a detailed analysis of the prevailing economic situation and the risks to price stability. It also provides articles on a wide range of topics related to the tasks of the ECB.
For the USA, following last weeks better than expected jobs data, further good news could cause further dollar weakness, benefiting other currencies that are percieved as risky. The monthly budget statement on Thursday will be one to watch, as it summarises the financial activities of federal entities, disbursing officers, and Federal Reserve banks. A positive budget statement that receipts exceed budgetary outlays is seen as bullish for the USD. On the other hands, a negative figure (deficit) that indicates government debt is seen as bearish.
Elsewhere, we have GDP from Japan, and an interest rate decision for New Zealand. Rates are expected to be left on hold, but the Australians surprised us recently, and if the RBNZ is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the NZD.
Full Breakdown below. For more information on how these released could affect your particular requirements, please contact us today.
EU – ECB Speech
US – Fed Speech
US – Consumer Credit
EU – Sentiment Index
UK – Retail Sales
UK – Industrial Production
UK – Manufacturing Production
Ger – Industrial Production
Jap – Gross Domestic Produc
UK – Nationwide Consumer Confidence
Ger – Consumer Price Index
UK – Trade Balance
NZ – Interest Rate Decision
Aus – Unemployment
UK – Interest Rate Decision
EU – ECB Monthly Report
US – Jobless Claims
US – Monthly budget Statement
UK – Producer Price Index
US – Import Prices
US – Consumer Sentiment
US – Retail Sales
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