Get set for a busy week of economic data that could cause some significant currency swings

Following a busy week, Friday was relatively quiet. The Federal Reserve struck a cautious tone in their meeting on Wednesday night which weakened the US dollar, as the chances of an interest rate hike this year diminished. A basket of currencies strengthened against the dollar on the back of this news.

Meanwhile, the euro continued its march and data from the eurozone proved positive. The pound reached a ten-month high against the dollar as it broke through $1.3100, but UK growth figures showed a significant slowdown compared to this time last year.

This week is set to be a busy one for economic data, as we have the Bank of England’s interest rate decision. As inflation surprisingly dropped from 2.9% to 2.6% earlier this month, it is unlikely that there will be an interest rate hike, but last time the members of the committee were split 5-3 which was unexpected. The markets will be hanging on Mark Carney’s every word for indications of future monetary policy.

Why not start your week by listening to the latest webinar in our series. Two of our currency risk management specialists look back at the economic and political events of the past six months, and highlight some things to look out for the rest of the year. We’ve had extremely positive feedback and both Harry and Jamie did an excellent job.

GBP: sterling set for a big week of data

It was a quiet end to the week which gave the markets time to pause after what had been a busy week. The only real point to note was comments from Chancellor Philip Hammond. He stated that any ‘transitional deal’ in the period after Brexit should be concluded before the next election.

Looking to the week ahead there is some significant data and event risk to sterling. On Monday, we have the lending and mortgage approvals. A key highlight of the week will be the release of the purchasing managers’ indices for the manufacturing, construction and service sectors. These are set for release on consecutive days, Tuesday through to Thursday, with the highlight on the dominant service sector.

Meanwhile, the highlight and big event risk will be the BoE interest rate decision and quarterly inflation report. Last time around there was a surprise as three members voted for a hike. As a result, the voting pattern will be closely watched. In addition, BoE Governor Mark Carney is due to speak during the release of the inflation report. His rhetoric will be deciphered for clues on future monetary policy. Due to the inconsistent comments from voting members this could result in some volatility in the pound.

EUR: eurozone data remains upbeat as Spain is back to pre-crisis levels

There were further positive signs for the Eurozone on Friday as inflation in Germany was higher than expected, posting a monthly increase of 0.4% against expectations of 0.2%. In addition, Spain’s economy grew by 0.9% in the second quarter. This shows that the economy has finally grown back to the size it was before the credit crunch of 2008.

Looking to the week ahead, there is a significant amount of data set to hit the wires. The key data releases are due in the early part of the week. Today we have the region’s inflation and German retail sales. Inflation is expected at 1.3% but following the positive reading from Germany this could be slightly higher than expected. On Tuesday we have the region’s first release of second quarter growth figures followed by the Spanish unemployment figures on Wednesday.

USD: IMF suggest dollar is overvalued by as much as 20%

An interesting close to the week for the dollar, with US GDP figures falling in line with forecasts at 2.6%, causing little excitement for investors. If anything, this weakened the dollar slightly, especially when coupled with the US Senate’s failure to pass the repeal bill of the 2010 Affordable Care Act on Thursday night.

Further to this, the International Monetary Fund said on Friday the dollar was overvalued by 10 to 20%. Could the appreciation we’ve seen in recent years be over for the dollar? Overall, the euro has increased by almost 3% this month and in excess of 11.5% year-to-date against the dollar.

Looking to the week ahead, we’ll be hearing manufacturing data and personal consumption expenditure but it’s US employment figures that will take centre stage. We expect to see a further strong rise with forecasts coming in at 175,000. Hopefully this will provide some clarity towards potential changes in US monetary policy later in the year.

For more on currencies and currency risk management strategies, please get in touch with your Smart Currency Business trader on 020 7898 0500 or your Private Client trader on 020 7898 0541.