By James Tucker
The currency market remains mixed this week, with sterling holding up reasonably well but facing some important tests from the euro, dollar and commodity currencies. The latest economic figures are giving traders more to consider, particularly around the strength of the UK economy and whether inflation is proving harder to control than expected.
The euro against the dollar has been relatively well supported. European business activity has improved, with the latest figures showing stronger growth across the eurozone. Consumer confidence has also edged higher in August, giving the euro a little more underlying support. The dollar, meanwhile, is waiting for more evidence about the health of the US economy.
The dollar could therefore remain under pressure if US data continues to disappoint. Today’s US releases include the second estimate of second-quarter GDP and July personal income and spending figures, including the closely watched inflation measure. Tomorrow brings weekly jobless claims, while Friday will bring updated consumer sentiment figures. These releases could give the dollar some direction after a fairly quiet period.
The pound against the Australian dollar has become more interesting following today’s Australian inflation figures. Inflation was stronger than expected in July, with underlying inflation also picking up. This has increased expectations that the Reserve Bank of Australia may need to remain more cautious, giving the Australian dollar some extra support. For sterling, this means the Australian dollar could become more of a challenge over the coming weeks.
Against the New Zealand dollar, sterling remains in a relatively comfortable position. The New Zealand dollar has not enjoyed the same support as its Australian counterpart, leaving the pound looking stronger overall. Future New Zealand inflation, employment and business activity figures will be important in determining whether that gap starts to close.
The pound against the euro is more finely balanced. UK inflation and retail sales have been important recent releases, while the latest European business figures have been encouraging. The UK data has not been strong enough to completely remove concerns about the economy, meaning sterling could become vulnerable if upcoming figures disappoint. The euro, meanwhile, has a little more support from improving activity across the region.
Looking ahead, the main UK focus will be on whether the economy continues to show signs of slowing. The latest UK release calendar is relatively quiet for the remainder of this week, so attention will increasingly turn towards the next round of growth and business surveys. In the US, GDP, inflation, income and spending data will provide the main direction for the dollar, while European confidence and activity figures will help determine whether the euro can continue to strengthen. Overall, sterling remains in a reasonable position against the New Zealand dollar and is still holding up against the Australian dollar, although the stronger Australian inflation figures are a warning sign. The euro is becoming more competitive against sterling, while the dollar remains dependent on incoming US economic data. The next few releases should provide a clearer picture of whether sterling can maintain its recent strength or begins to lose some ground. As always stay in close contact with A Place in the Sun Currency to help you get the most out of your money.