Good morning and welcome to a new week. In today’s post I’ll have a look the Pound/Euro and Pound/Dollar forecast and have a look ahead to what data releases could affect the rates during the week ahead.
Pound/Euro and Pound/Dollar forecast
GBP/EUR managed to recover around a cent, but then seemed to hit resistance at the €1.1450 mark. This pair is being pulled in 2 directions at the moment. On the one hand, a slowdown in EU growth coupled with Italian political uncertainty is weakening the Euro. On the other hand, Brexit jitters have returned to the market, limiting any gains for Sterling. There is confusion over whether the UK will remain in the customs union and this is what limited further gains for the Pound.
Looking ahead to this week, the key releases that are likely to affect GBP/EUR rates are: UK inflation and public sector net borrowing figures tomorrow (Tuesday) followed by CPI and RPI numbers on Wednesday. If inflation has picked up again, which it is expected to have done, then it will increase bets that the BoE will raise interest rates this year, which in turn would strengthen the Pound and push GBP/EUR rates higher.
We will also see the latest UK Retail Sales data which is a good barometer of overall economic growth. GDP numbers are released on Friday, and throughout the week we also have various speeches by the Bank of England MPC members, including the BoE governor Mark Carney. The markets will be watching closely for any clues as to whether interest rates will rise.
While all of the above are likely to be the main movers for the Pound this week, there will also be Brexit based events happening in the background, and this also has the potential to affect the Pound significantly. Simply put, anything that increases uncertainty about the future relationship between the UK and EU will likely push the Pound lower. If there is progress made (which is looking rather unlikely in the short-term!) then the Pound is likely to gain.
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The Pound did not fare as well against the USD. GBP/USD have hit fresh 2018 lows this morning. This is in part due to the Pound weakening over Brexit uncertainty, as outlined in the Euro section of today’s report. The main reason for the drop in GBPUSD however is due to the Dollar gaining strength and becoming more expensive to purchase.
The USD has been getting stronger recently for several reasons. Firstly, it’s expected that the USA will continue raising interest rates several times this year. Also, global political uncertainty has pushed investors to the relative ‘safe haven’ status of the USD. Trump’s decision to pull out of the Iran nuclear deal has also caused the USD to gain as investors get the jitters. This morning, the USD has strengthened further after US Treasury secretary announced that the US/China ‘Trade War’ is on hold following their agreement to suspend threats of tariffs.
This week, from the UK it’s likely to be inflation data and Retail Sales numbers that will drive the Sterling side of this pair, depending if the numbers are better or worse than forecast. On the US Side of the cross, I think the latest FED minutes mid-week will be key for any indication of future US interest rate movements. US Durable goods orders on Friday will also be in focus, and of course Brexit is still hovering above, which at any time has the potential to move the Pound by a significant margin.
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