By Kian Songra
Round up of last week
Last week the Pound extended gains against the Dollar and closed a deficit against the Euro after survey data showed the UK economy outperformed expectations in January. Better than expected Manufacturing and services PMI data for the UK, was a welcome break from the seemingly endless spiral of downbeat UK economic releases we have become accustomed to, against its major peers recently.
With the Pound regaining 2 cents on the US Dollar, this week’s data releases from across the Pond, will determine if the Pound’s recent momentum will last. With GBP/EUR showing some signs of stabilisation, the German PMI report has shown indications that Europe’s largest economy could have finally turned a corner. With this in mind, those hoping for GBP/EUR to rebound back to the previous peaks, may be in for a reality check.
This week
US President Donald Trump’s tariff talks, and other policy announcements will continue to stir markets as traders will look to a bunch of high impact US economic data releases for a fresh directional impetus in the currency markets.
Monday is expected to be relatively quiet in terms of data releases on both sides of the Atlantic. ECB president Christine Lagarde’s speech late in the afternoon, will be the only notable release that investors will look to analyse. Any hints ahead of the interest rate on Thursday, will likely sway inventors’ decisions, potentially causing volatility in the markets.
Tuesday, we see the release of US data with Durable Goods Orders and Consumer Confidence. Durable goods measure the cost of orders received for durable goods, with larger orders attracting larger inward investments. Durable goods is a good indicator of the US economic situation and generally a higher reading is seen as positive for the Dollar.
On Wednesday, the spotlight will be on the Federal Reserve’s interest rate announcement, with markets closely analysing Chairman Jerome Powell’s press conference for hints on the timing of the next interest rate cut. The Fed is expected to keep the interest rates at 4.5%, further fuelling the dollar’s attraction for foreign direct investors. Canada, one country Trump has heavily targeted with potential tariffs and also mentioned that he wants it to become ‘America’s 51st state’, will also see its release of its interest rate decision. Those with Loonie requirements, may look to monitor this reading.
Focus will then shift to a busy Thursday. The interest rate decision from the ECB, will be the one to watch. The ECB is expected to cut rates by 25bps to 2.75%. This has been widely anticipated and has possibly been priced into the markets. So, for those expecting large movements, if the release is as expected we expect to see little movements. However, the conference held by the ECB president Lagarde 30 mins later, will provide investors with a possible insight into its future outlook. Again, Lagarde is expected to keep her cards close to her chest, to discourage any signals about accelerating monetary easing.
EU Gross Domestic Product, consumer confidence and unemployment rates are also released in a flurry of readings to possibly add to the Euro’s fate heading into 2025. All readings are a measure of the economic state and this will help determine whether the Eurozone has steadied its ship after a downbeat 2024. Political uncertainty is never good for a currency, but with a snap election upcoming in Germany and France firming up control, the eurozone could restore faith in investors.
Additionally, on Thursday, stateside we see the preliminary reading of US fourth-quarter GDP, which could trigger volatility in the US Dollar and influence currency pair movements. Furthermore, the American calendar will include weekly initial Jobless Claims.
To round off the week, Friday will feature key US data releases, including the December Personal Consumption Expenditure (PCE) Price Index and the quarterly Employment Cost Index (ECI). With the Fed’s ‘blackout period’ concluding, policymakers are expected to return to the spotlight.
With a busy week ahead and two interest rate decisions, we could see a shake up in the currency markets. Those looking to sell abroad, could take advantage of the Pound’s recent losses on its majors, as signals of the Pound resilience are starting to show. Those with Sterling in hand may look to potentially mitigate any further risk by securing their currency ahead of time, with a vast amount of uncertainty in the markets, it’s worth discussing with our friendly team for some guidance.
With the Bank of England’s (BOE) interest rate decision upcoming, those hoping for the Pound to rebound should be cautious as an interest rate cut for February is what investors are currently favouring. Interest rates remain the main driver of GBP behaviour so with the recent weakness we could see the BOE accelerate the pace of its cuts.
Since the start of the new year, we have seen GBP/EUR tumble by 2-cents. In monetary terms, if you were looking to buy a property for €200,000, the cost in Pounds, is now approximately £2,900 more expensive. Should the Pound take a further tumble, those that have budgeted, could have to cut expenses unwillingly elsewhere. So, for those that aren’t willing to compromise on their plans for their dream property, could look at fixing the rate ahead of time to create peace of mind. Please get in touch with our friendly team of currency consultants for guidance and support.