By Nick Harrison
The only real mover last week was the US Dollar as the FX market ended a pretty quiet week of trading with little price action to excite investors. A couple of reasons behind the shift in sentiment towards the Dollar were a gain in US Retail sales after a drop in January and US Producer Price Inflation seeing the largest increase since August. Despite Friday’s shock drop in manufacturing data, markets are now seeing a 60% chance of the Federal Reserve Bank cutting interest rates in June from a previous 74% the week before. The lower the chance of interest rate cuts, the stronger that currency becomes, so a full-on week ahead of data could well see this sentiment change.
So, the Pound against the Euro has seen a tight range for some time now and not much has happened to shift it. Sterling has been trading at the highest levels seen since September against the Euro, but all this could change this week. From Wednesday onwards, we could see a lot of volatility in the market as some major data releases could see some big exchange rate fluctuations.
Wednesday
The UK CPI figure is release at 7am. This is considered the UK’s most important inflation data because it’s used as the central bank’s inflation target. Any shift outside of the forecasted 3.5% could well see the Pound move strongly against the EUR & USD.
The US Federal Reserve Bank announce their interest rate decision at 6pm with a statement following just after. The Fed are expected to keep the interest rate held at 5.5%, but anything different will shock markets. Also, more importantly, the statement that follows will give a new indication about how the Fed feel about future interest rate decisions, so look out for market volatility over Wednesday night and Thursday morning.
Thursday
The Bank of England’s Monetary Policy Committee (MPC) set the UK’s interest rate at Midday. They are expected to keep the rate at 5.25%, but anything outside of this could spark a big market reaction. We also see how the voting went with the MPC’s 9 members, each contributing the all-important opinion on how the outlook is for the UK economy. Investors will look very closely at how the votes went, so again this could be a big market mover. Voting for an early cut in the interest rate will potentially weaken the Pound whereas a vote for an increased rate (albeit unlikely) will strengthen it.
Friday
The UK Retail Sales figure is released at 7am. This is the primary gauge of consumer spending, which accounts for the majority of overall economic activity in the UK. The market is expecting a drop of -0.3% against a previous increase in 3.4%, so again we could see some exchange rate volatility after this figure is released.
So those are the headline market releases for this week which could see a huge impact on the cost of your foreign exchange requirements. Luckily, we have our fingers on the pulse here, so please reach out to us and we will talk you through how this information can help us formulate a strategy to reduce this market risk and help you manage your costs during volatile trading times.
The week ahead also sees other important data releases and these are detailed below.
Thursday:
8.15am French Manufacturing & Services PMI (Purchasing Managers Index)
8.30am German Manufacturing & Services PMI
9.30am UK Manufacturing & Services PMI
12.30pm US Unemployment Claims
1.45pm US Manufacturing & Services PMI
Friday:
All Day Euro Summit
1pm US Federal Reserve Bank Chairman Powell speaks