By James Caley
Sterling has continued its recent run of strength this week, particularly against the Euro, with the Pound remaining close to its strongest levels in around a year. Confidence in the UK’s political outlook has helped support the currency, while continued weakness in the Eurozone economy has weighed on the single currency. Against the US Dollar, Sterling has also held firm despite ongoing uncertainty surrounding the outlook for US interest rates.
While the Pound has enjoyed a positive start to the week, the market’s attention is now turning to a number of important economic releases that could dictate the next move. US producer inflation figures and further comments from Federal Reserve policymakers will be watched closely for any clues on the future direction of US interest rates. Any signs that inflationary pressures remain stubborn could quickly strengthen the Dollar and increase volatility across the major currency pairs.
For Sterling, Thursday could prove to be the most significant day of the week. UK GDP and manufacturing figures will provide the clearest indication yet of how the economy is performing. Stronger than expected data could give the Pound further support, but any disappointment may prompt investors to question whether Sterling’s recent gains have come too far, too quickly.
By contrast, there is very little market moving economic data due from the Eurozone for the remainder of the week, meaning movements in GBP/EUR are likely to be driven more by developments in the UK and the US than by the Euro itself.
With several market moving events still to come, there is every chance that current exchange rates may look very different by the end of the week. Periods of relative market calm can quickly give way to increased volatility once key economic data is released. If you have an upcoming currency requirement, now could be a sensible time to review your options rather than waiting to see how the markets react.