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Sterling remains supported, for now

Arron Morris Currency Broker - Sterling remains supported, for now Written by
Arron Morris
Senior Currency Broker
T: 01442 892 065

The pound was thrown a bone by Kristin Forbes last week, and it kept hold of that bone by consolidating a 3rd consecutive day of gains on Friday. In my esteemed colleague Alastair Archbold’s report on Friday he outlined the reasons for the gain; the fact that the Bank of England may be leaning towards a rate rise later this year.

I think the markets are getting ahead of themselves with regards to inflationary expectations. Perhaps the BoE knew that this would support the British currency in the run up to the Brexit negotiations. The pound has fallen quite a bit in the last few weeks and this in part has heightened the problem of rising inflation, due to imported goods becoming more expensive. Reuters pointed out on Friday that perhaps the BoE are perfectly happy for the market to be pricing in some chance of a rate hike in the next year in order to give the pound some much needed support.

The fact remains however that nearly all analysts do expect the pound to fall when Article 50 is triggered in the next week or two, so euro buyers should put some protection in place in case the rate does start to nosedive.

On Friday while sterling held on to its gains, it traded in a very tight range against other major currencies.

Let’s take a look ahead at what data is coming this week that could move exchange rates.

GBP/EUR exchange rate graph

GBP/EUR exchange rate graph

This week’s economic data releases

Various things affect exchange rates, including natural disasters, acts of war, political developments and economic data releases. Of these the last 2 are the ones that can be foreseen, and as regular readers will know it’s politics that has been driving exchange rates so far in 2017. That changed a little last week though with the pound gaining on economic data, specifically the chance of an interest rate hike later this year.

Below I’ve listed the main releases for the week ahead that I think could affect the markets including some important inflation numbers on Tuesday. If you would like to discuss what could affect that currency pair that you’re looking at (e.g. GBPUSD, AUDGBP, GBPCAD) then get in touch for a chat with one of our brokers and we can provide you a bespoke outline of what could move things in the coming weeks.

Monday 20th March – A quiet start to the week with nothing of note from the UK. Germany releases inflation figures which could impact future interest rate moves, and with talks of a rate hike later in the year, a high number could strengthen the euro. Late tonight we also have the RBA meeting minutes from Australia that could affect GBP/AUD rates.

Tuesday 18th March – We get going with data from Britain today, with a raft of inflationary measures and Public Sector net borrowing. It’s the Annual CPI figure that’s the most interesting. Last time it was 1.8% and today we expect a figure of 2.1% which is above the 2% target and would increase the chance of an interest rate hike in the UK should wage growth not slow too much.

Wednesday 19th March – Nothing from the UK today, but the ECB meeting could still move GBP/EUR rates. At 8pm this evening New Zealand announces its decision on interest rates. If they decide to change from the current 1.75% then GBP/NZD could be affected.

Thursday 20th March – UK Retail Sales are released today at 09:30am. These are seen as a barometer of economic health, and recently has been dropping, showing consumers are becoming more cautious. Markets expect a monthly gain of 0.4% but if it’s negative like last month, expect the pound to fall. In the Eurozone we have an economic bulletin and a measure of consumer confidence. The USA releases Home sales and jobless claims along with a speech by Janet Yellen – watch for any comments on future monetary policy. We end the day with Import and Export numbers from New Zealand that may affect GBP/NZD

Friday 21st March – Manufacturing and Services data will be released from Germany and the EU this morning which often affect GBP/EUR rates. Strong readings would strengthen the euro and make it more expensive to buy. We have the same releases from the USA this afternoon. Canada also has inflation numbers so busy end to the week.

Arron Morris
Senior Currency Broker
T: 01442 892 065

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