By Matthew Boyle
Yesterday was a very flat day of trading for the three major currencies – GBP, EUR and USD, amidst few releases of critical economic data, which could move rates. The only release of note was German inflation in the morning, which showed no change to the expectation, and as such GBP>EUR remained fairly flat but continued to test the recent ceiling – touching the highest rates we have seen in 16 months. GBP>EUR rates have now risen almost 2% in the last 3 weeks, with this rise largely driven by a weak Euro and a strong US Dollar – the weak Euro allowing GBP>EUR rates to push up, and the strong Dollar increasing the momentum against the single currency.
It is worth nothing and of little surprise that while GBP>EUR rates sit at a 16-month high, EUR/USD rates currently sit at a 15-month low, with the strong Dollar helping push GBP>EUR rates higher. However, should the Euro regain some legs and the Dollar start to weaken, the current highs on GBP/EUR could be lost extremely quickly.
GBP/USD also traded within a very tight range yesterday, albeit the Pound stole around a third of a cent against the Greenback by the end of the day.
All eyes will be strongly fixed on this afternoon’s US inflation data, which could change the current course of the three major currencies. With markets currently pricing in 75 basis points of interest rate hikes by the FED any change to the expected inflation reading could see market sentiment swing for the Greenback.
On Thursday we have production data and Friday sees industrial data from the US, although following the US inflation data this afternoon, tomorrow we also have EU inflation. While no major surprise is expected, any change to the predicted and priced-in inflation figures, could see a shift in exchange rates quickly.
The market definitely feels in a precarious position, with GBP/EUR and USD/EUR at multi month highs, but both very dependant on potentially tenuous support. Any change in expected data or a shift in market sentiment is likely to see rates change quickly. Add to this the UK Autumn Budget approaching on the 28th of this month, and it is tough to know how long the current status quo will last. Should you have an upcoming currency requirement speak to your consultant today for some friendly and professional guidance on how we can help you plan, remove risk, and make your money go further
Economic data releases this week
Wednesday
09.30 EUR President Lagarde speech
13.30 USD Inflation Data
Thursday
01.30 AUD Employment data
13.30 USD Producer Price index and Retails sales data
18.15 NZD RBNZ Breman speech
Friday
03.00 GBP BoE Governor Bailey speech
04.30 USD Fed Chair Warsh speech
10.00 EUR Inflation data
14.15 USD Industrial Production data