Will sterling recover this week?
Weekly currency market update from Charles Purdy, director of Smart Currency Exchange.
Sterling struggled at the end of the week, losing ground against both the euro and the US dollar as the UK trade balance showed a larger deficit throughout the previous month than forecast. Despite falling close to a five-month low versus single currency, sterling showed a more resilient performance against the US dollar – although it did lose much of the ground it had gained on Thursday.
A bank holiday in the US today looks set to cut trading volumes throughout the day, but with three members of the Federal Reserve committee speaking throughout the day, there may well be some movement for sterling. Tuesday sees the first major data release from the UK, with confirmation of inflation figures throughout September. After slipping to 0% in August, this figure is expected to have remained flat throughout September. Wednesday’s jobs report from the UK could provide further movement for sterling, as we gain insight into state of the UK labour market. Average earnings have been steadily increasing throughout the past year, and with a further further improvement in this data forecast it could support sterling. Aside from this, attention is likely to be turned to the US, where a number of influential data releases are expected towards the end of the week.
Euro strengthens due to external movements
The euro had a strong day against sterling and the US dollar on Friday, but this was due to weakness from the two other currencies rather than strength from the Eurozone. A quiet data day for the single currency meant it could benefit from the struggles faced by the majority of other currencies – and begin this week in a strong position.
This week, ZEW business confidence data from Germany is released on Tuesday, and is forecast to drop from August’s figure of 67.5 down to 65. Industrial production data from the Eurozone will be released on Wednesday, and this is expected to fall from 0.6% down to -0.5%. A negative figure can affect the single currency as a whole as it implies that production is shrinking – and this in turn fuels concerns about the eurozone on the whole.
US dollar expected to be affected by numerous releases this week
Following the US Federal Reserve meeting minutes on Thursday, the US dollar weakened in response to the dovish views on a rate rise – however, these losses were soon wiped off thanks to weak trade balance data from the UK. Federal Reserve member Dudley backed up previous statements on Friday promoting the idea of a rate rise this year.
With banks shut today due to Columbus Day, attention will turn to both Wednesday and Thursday. Wednesday will see Key Retail Sales figures released, and this is expected to be a negative figure for the first time in three months; producer inflation data is also released on Wednesday and expected to post a negative figure. Thursday has the release of Consumer inflation – and forecasts expect to see negative inflation for the second consecutive month. If these results are released as expected, we may well see talk regarding an interest rate rise this year be pushed back to 2016 and weaken the US dollar further. This week will finish off with Industrial production on Friday – also expected to post another disappointing figure – alongside consumer sentiment, which is expected to show the only positive signs for the week with an increase.
Plethora of information expected from Australia this week
Australia will be the busiest of the exotic currencies this week, with three major releases that will affect their Dollar. The Antipodean nation ended last week strongly, gaining more than 1% against both sterling and the US dollar, and will hoping for much of the same. Early Tuesday the National Australia Bank (NAB) Business Confidence is unveiled; after falling last month, the Australians will be hoping for some stronger data this time. Thursday will offer some insight into Australia’s unemployment statistics. The pivotal Employment Change and Unemployment Rate are released simultaneously and can often have a significant effect on the market.
