What could impact the pound this week? GBP/EUR and GBP/USD outlook

Sterling has found some support this morning against the Euro with the pound pushing to a near 10 day high against the single currency. Levels have reached a high of 1.1465 up from last weeks low of 1.1345, possibly an opportunity for this looking to buy Euros?

Unfortunately for clients buying US dollars, the recent trend appears to be continuing with the pound now trading at its its lowest level since November 2017. Sterling has now lost just shy of 9% against the dollar since mid April and is showing little of sign of slowing. Below I will look at what data could impact these pairings this week:

GBP/EUR

As mentioned we have seen the pound find some support against the Euro this morning with movements appearing to be Euro weakness as opposed to Sterling strength. Currently the Euro is under a little bit of pressure with the Italian elections and political uncertainty in the country causing uncertainty within the Euro Zone and having an impact on the currency as a result. President, Sergio Mattarella, installed an interim prime minister to lead a new government after a bitter falling out with the country’s populist parties with a view to fresh elections in the autumn.

This uncertainty could mean some opportunities for Euro buyers. If you look at the trend over the last 7-8 months the high/low range is 1.1550/1.1150 showing how little movement we have seen for this pair. For this reason any move towards 1.15 should represent a good buy opportunity in my view.

This week is very quiet from the pounds point of view and any movement in this pair will be caused by events elsewhere. Again expect on-going volatility caused by events in Italy but data wise the main focus will be Wednesday’s Euro Zone industrial and consumer confidence at 10:00 and Euro Zone inflation figures and the unemployment rate on Thursday, also at 10:00.

Consumer confidence is expected to remain flat at 0.2 and industrial confidence expect to fall from 7.1 to 6.7 potentially putting more pressure on the Euro. Inflation is expected to increase form 1.2% to 1.6% on Thursday’s which should counteract and losses seen on Wednesday.

My view – I would expect the Italian elections to keep the Euro under pressure this week and can see a move through 1.15. I would expect this move to be short lived and any euro buyers should be tempted at these rates.

GBP/USD

It would appear the pound is following on from last weeks losses where levels fell from 1.3490 to Fridays low of 1.3350. This morning we reached a fresh 6 month low of 1.3203 bringing the pounds losses to over 11 cents since mid April.

This is a significant move and there is little reason to suggest this trend will stop. If you look at EUR/USD the trends are also very similar with the dollar having gained nearly 7% in the same period meaning the dollar is currently heavily in favour. With the futures market pricing in up to 3 interested rate hikes from the Fed this year a move towards 1.30 looks likely although I would not be surprised to see a short term correction to 1.35 before this happens.

Looking at this week and again movements are likely to be dominated from events across the pond. Look out for US GDP data tomorrow at 13:30, no surprises expected with figures forecast flat at 2.3% but still one to keep an eye on. The main focus will be Fridays jobs data in the form of non-farm payroll figures. These represent the number of jobs created outside of the agriculture sector and are used as a barometer for how the US economy is performing. Generally a higher reading is good for the dollar and with levels expected to increase from last month, the dollar could have another strong week.

My view – dollar sellers should be ready to strike. We have seen such a strong rally for the dollar but I am confident we will see a slight market correction. With the dollar having gained nearly 9% in just over 6 weeks many dollar sellers are cashing in, not a bad move in my view.

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One Comment on “What could impact the pound this week? GBP/EUR and GBP/USD outlook

  1. Pingback: Sterling rebounds ahead of tomorrows US jobs data - Currency Forecasts

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