By Michael Jacobsen
As we step into the first week of September, the quiet summer trading period is officially over. Central banks are taking centre stage once again as they prepare for critical interest rate meetings later this month. Sterling has started the week on a steady footing, but it faces immediate pressure. The Bank of England is widely expected to keep interest rates exactly where they are, while the European Central Bank and the US Federal Reserve are strongly indicating that they are ready to raise interest rates further. This contrast in approach is the primary force driving currency movements this week.
GBP/EUR Outlook
Looking first at our European pairs, sterling’s traditional advantage of offering higher interest rates than the Euro is shrinking. All eyes are on Tuesday’s Eurozone inflation data. If inflation figures come in higher than expected, it will be a strong signal that the European Central Bank could raise interest rates on September 10th. A high inflation reading will likely strengthen the Euro, potentially pulling GBP/EUR down. On the other hand, lower inflation data could relieve pressure on Sterling and push GBP/EUR back higher again.
GBP/USD Outlook
Moving across the Atlantic, the US Dollar is experiencing a broad resurgence. Following strong signals from the Federal Reserve that they are intent on raising rates to tackle persistent inflation, the market is pricing in a high possibility of another US interest rate hike this month. This has pulled GBP/USD lower, and because the Bank of England is unlikely to match the US Federal Reserve’s aggressive path, the US Dollar is heavily favoured by investors looking for better returns, keeping Sterling on the defensive.
Key Economic Data to Watch
To protect your transaction from market fluctuations this week, keep a close eye on the specific economic data coming out day by day. On Tuesday, the Eurozone releases its latest inflation figures, which will heavily dictate whether the Euro rises or falls against the Pound. On Wednesday, we will see the latest interest rate decisions from Canada and New Zealand, which can cause sudden shifts in international investor flows. On Thursday, the UK and Europe release their final business health reports, revealing how well both economies are performing. Finally, on Friday, the major monthly US employment report will be released; while this is an American update, it heavily steers global market trends and frequently causes sharp, unexpected movements in the Euro and Pound exchange rates.
With exchange rates highly vulnerable to sudden shifts around these events, please contact your specialist currency consultant at A Place in the Sun Currency, to help make your money go further.