By James Caley
Sterling has traded in relatively tight ranges so far this week against both the Euro and the US Dollar. GBP/USD has been broadly flat overall, while GBP/EUR slipped slightly yesterday, as the Pound gave back a small amount of ground. With no major UK data released at the start of the week, movement in Sterling has been limited and largely driven by overseas events rather than domestic fundamentals.
The main focus today is the US Federal Reserve interest-rate decision, where markets are fully expecting a 0.25% rate cut. With that move already largely ‘priced in’, the reaction in GBP/USD and EUR/USD is likely to be driven more by what the FED says about the outlook for further cuts, rather than the decision itself. A more cautious tone could support the Dollar and keep GBP/USD under pressure, while clearer signals of further easing would likely weaken the Dollar and lift both GBP/USD and EUR/USD into the back end of the week.
From a UK perspective, the key release still to come this week is Friday’s monthly GDP figure for October. This is one of the standout domestic data releases for Sterling each month, and particularly critical at present with economic growth and the recent budget very much in focus. A weak reading would likely extend recent softness in the Pound, particularly against the Dollar, while a more positive number could help stabilise GBP/EUR and keep GBP/USD supported as we move towards the weekend.
Elsewhere, attention today also turns to the Bank of Canada interest-rate decision, which could drive volatility in GBP/CAD. The Australian and New Zealand Dollars have been steady so far this week, with no major domestic releases to shift direction, while commodity price movements remain an important driver for CAD.
Overall, this is a cautious mid-week market for Sterling, with direction likely to be determined by the FED tonight and the UK growth update on Friday.