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Market Report 25th July 2016

CURRENCY SNAPSHOT

EUR - With growth rates tumbling, inflation barely positive and the Italian banking system in crisis, the euro could have a troubled week.
GBP - The pound will look for support from a decent GDP result this week, but could stumble on consumer confidence.
USD – Focus will be on the Fed this week, as markets look to see if the US is still inline for another interest rate hike.

ROUNDUP

The UK saw inflation and unemployment improve at the start of the week helping the pound rebound higher against the euro and US dollar on Wednesday, however poor retail sales and manufacturing and services figures for July disappointed and caused a sharp fall on Friday, erasing earlier gains.

In the Eurozone, the European Central Bank’s kept its interest rate on hold and in the monetary policy statement, ECB President Mario Draghi indicated that rates will remain at the current levels or lower until March 2017 and the asset purchasing programme was also confirmed to be extended beyond March 2017.

COMING UP

A light calendar for economic data releases from the UK this week is likely to mean markets turn to geopolitical news for direction, with anything Brexit related being watched closely. UK GDP will be released on Wednesday with a slight improvement expected which could bolster the pound. However, consumer confidence on Friday is expected to fall sharply and as a result pressure the pound at the end of the week.

With the major releases of the week scheduled for Friday, it'll be a busy day for the euro. GDP for the Eurozone is expected to have halved from the first to second quarter this year and inflation is expected to remain barely positive. In addition European banks will undergo a health check which is likely to highlight the extent of the troubles in the Italian banking system, as analyst believe that banks could have €360bn in near worthless debt.

Consumer confidence will be the first release from across the pond on Tuesday, with expectations for a fall, which could see the dollar lose some momentum. However this may be short lived as durable goods orders are likely to show a small improvement on Wednesday ahead of the Fed rate decision. Whilst no change is expected from the Fed, attention will be paid to any forward guidance for possible rate hikes this year. GDP and inflation data will close out the week, with a strong performance expected here the dollar is likely to strengthen.

Monday 25 July 2016, 09:49am

Market Report 18th July 2016

CURRENCY SNAPSHOT

EUR: ECB Interest rate decision and monetary policy statement in focus this week.
GBP: Inflation, jobs and manufacturing figures will be in focus for the pound.
USD: US figures out on Thursday will be the key mover for dollar moves this week.

ROUNDUP

Sterling had a good week, finishing 2.54% higher against the US dollar and 2.40% against the euro.

Sterling was initially buoyed by Andrea Leadsom stepping down from the Tory leadership contest and with Theresa May being announced as Prime Minister. Sterling received another boost on Super Thursday with the Bank of England holding interest rates at 0.5% and only one member of the Monetary Policy Committee voting to cut interest rates.

However BoE Chief Economist Andrew Haldane took out sterling optimism on Friday by one again reiterating that the Bank of England must unleash monetary easing measures in August as a fallout from the Brexit vote.

Elsewhere the only significant news saw the Bank of Canada hold interest rates at 0.5%, Eurozone inflation remained near to 0% and the US dollar finished on a high at the end of the week with retail sales climbing in June suggesting a strong second quarter. However, US inflation did disappoint remaining at 1%.

COMING UP

In the week ahead, investors will be focusing on the outcome of Thursday’s European Central Bank interest rate decision and Mario Draghi’s accompanying speech. Interest rates are expected to remain at 0%.

The UK is to release what will be closely watched reports on employment, inflation and manufacturing activity. We could see sterling start the week well, as Inflation and wages are expected to have improved for June. However given that retail sales and manufacturing and services are expected to drop, we could see any gains then erased by the end of the week.

The main bulk of US data will be out on Thursday, with the release of data on jobless claims, existing home sales and manufacturing activity in the Philadelphia region.

On Tuesday The Reserve Bank of Australia is to publish the minutes of its latest monetary policy meeting, giving investors insight into how officials view the economy and their policy options.

Monday 18 July 2016, 10:36am

Market Report 20th March 2016

CURRENCY SNAPSHOT

GBP: EU Referendum will be in focus this week, with sharp volatility expected throughout the week.
EUR: The euro will be at the mercy of movements in the pound and the referendum vote.
USD: Could come under some pressure as further negative data is expected, thus pushing back any expectations of a rate hike.

ROUNDUP

Last week started off horribly for the pound, as referendum polls over the weekend prior suggested that the leave campaign had edged ahead. Poor inflation data for the UK pushed sterling lower again on Tuesday. However, the pound regained much of its lost ground across the week as employment figures and retail sales surprised to the upside.

US Retail sales bolstered the dollar on Tuesday as the figure for May beat expectations. The Fed kept their interest rate on hold and sounded cautious given the uncertainty surrounding the UK referendum and how a Brexit could impact an already fragile economy. Sounding more dovish than previous the Fed Chair Janet Yellen suggested that uncertain times could delay the Fed rate hike. Coupled with a slippage in inflation the dollar took a step back by the end of the week.

COMING UP

The European referendum will be the biggest event of the week. Voting is scheduled for Thursday and the result should be announced by Friday morning. This means we could be in for a volatile week as election polls are likely to be announced ahead of the result, which could cause big swings in the currency market. A remain result would likely see a relief rally for the pound and a leave result would pressure the already waning currency. In addition, the UK will release public sector borrowing figures on Tuesday and consumer confidence data on Wednesday, though this is likely to be overshadowed by the referendum.

The Fed Chair Janet Yellen, will deliver her semi-annual testimony before Senate on Tuesday and then again before the House Financial Services Committee on Wednesday. As this testimony comes just a week after the Fed decided to leave its interest rate unchanged and pushed back its 2017 rate rise forecasts, markets will expect Yellen to reiterate the cautious message. In addition, Durable Goods Orders will be released on Friday and are expected to show a considerable decline into negative territory, which could see the dollar under pressure, especially if we see a remain vote in the referendum the day before.

Fairly thin on the calendar this week in the Eurozone, with economic sentiment surveys due on Tuesday. The German specific survey is expected to disappoint and could see the euro lower. Wednesday the ECB will meet at their non-policy meeting and Thursday will see Services and manufacturing data released, with only a small improvement in services expected this may be a non-event.

Monday 20 June 2016, 11:12am

Darren Kilner

Darren Kilner

Head Of FX & Dealing

Email Darren

Call us on 020 7778 9350