Currency Exchange Rate Forecast: GBP, EUR, USD, AUD, CAD17 July 2017 by FC Exchange
Comments from central bankers may play a key part in market movement this week, alongside ongoing political developments and economic data, say currency experts FC Exchange.
GBP – BoE Deputy Governor Suggests Raising Rates ‘Tricky’
– On Tuesday, sterling plummeted across the board following dovish comments from the Bank of England’s (BoE’s) Deputy Governor, Ben Broadbent, who suggested that raising interest rates was ‘tricky’ and stated that he is ‘not ready to do it yet’.
– Accordingly, GBP/EUR fell through a key support level of 1.1300 interbank (IB) to reach the currency pair’s lowest trading level since November 2016, whilst the GBP/USD exchange rate was also left weaker, falling to a July low of 1.2814 (IB).
– Better than expected UK labour market statistics saved sterling from another downward lurch on Wednesday morning as wage data improved from 1.8% to 2.0% and the unemployment rate improved to 4.5% down from 4.6%.
– Hawkish comments by BoE policy maker, Ian McCafferty, saw sterling rocket versus the euro as he argued the BoE should think about ending quantitative easing early. In addition, he stated that he would be voting for a rate hike in August – joining Michael Saunders and potentially Andy Haldane.
GBP – Week Ahead
– Markets can expect further sterling volatility as Brexit negotiations resume today with Brexit Secretary, David Davis, visiting Brussels for the second round of formal talks.
– He has said his priority is to ‘lift the uncertainty’ for EU citizens living in the UK and Britons living in the EU. This meeting comes after Chancellor Philip Hammond suggested that businesses are holding off from investing in the UK because of uncertainty about Brexit.
– Tuesday morning will see in a mixed bag of UK data including the UK’s consumer price index (CPI), producer price index (PPI), and retail price index.
– During Tuesday’s afternoon trading BoE Governor Mark Carney is due to speak. His comments have been known to initiate both short-term positive and negative trends, so his statement will be one to watch.
– The other major release for sterling is retail sales on Thursday which is expected to gain optimistically.
EUR – Germany Boosts Euro with Positive Data
– Another bumper performance from Germany bolstered the euro at the start of the week as the latest trade balance figures impressed investors.
– Mid-week EUR/USD peaked at 1.1475 (IB) – the highest trading level since May 2016.
– Wednesday’s Eurozone industrial production and employment change reports also beat expectations but were not influential enough to boost the euro outlook.
– Germany’s consumer price index (CPI) figure printed in line with forecasts at 0.2%.
EUR – Week Ahead
– Final CPI figures from the Eurozone are set to fall to 1.3% from 1.4% previously.
– The main risk event for the euro will remain the European Central Bank (ECB) monetary policy decision due later this week, which will provide fresh insights on the ECB’s tapering plans.
– No actual policy changes are expected and economists are expecting the ECB to hold fire this week and wait until September before slowing the pace of its monthly bond purchase program.
– Potential for investors to sell the shared currency from its highs in profit-taking while Brexit concerns circulate could dampen euro demand.
USD – Yellen Creates Weaker Dollar
– The US Dollar (USD) fell following the release of Federal Reserve Chief, Janet Yellen’s, dovish testimony on Wednesday.
– Yellen reiterated prior statements from Fed Governor Lael Brainard, specifically that rates are close to a ‘neutral’ level and not in need of a significant move higher.
– Disappointing US data flow on Friday, including softer inflation figures and retail sales reports, also poured cold water on the Fed’s rate hike expectations.
– Fed funds futures imply around a 50% chance of another hike by December and have less than two moves priced in for all of next year.
– Notably, GBP/USD lifted to its highest level since September 2016, breaking through an important hurdle of 1.3030-50 (IB).
USD – Week Ahead
– The US economic calendar is quieter this week with the Fed’s position in regard to potential rate hikes continuing as the main focus.
– The markets can look forward to the Empire manufacturing index later today.
– On Wednesday, US building permits and housing starts could influence USD movement slightly.
– There could also be some greenback volatility on the back of US unemployment claims and the Philly Fed manufacturing index set for release on Thursday.
AUD – Aussie Enjoys Rally
– The Australian dollar has enjoyed a surge in popularity after key commodity prices rose and the US dollar softened. However, some are concerned that a stronger Aussie dollar could bode badly for the economy if it damages tourism prospects.
This week investors in the Australian dollar will be keeping a close eye on the Reserve Bank of Australia (RBA) July meeting minutes on Tuesday, as well as labour market data due out on Thursday.
In addition, RBA representatives will be speaking throughout the week which could create further AUD movement.
CAD – Canadian Dollar Hits 14-Month High
Meanwhile, the Canadian dollar topped 79 US cents last week reaching levels that haven’t been seen for 14 months. The Loonie moved higher following the Bank of Canada’s (BOC’s) decision to hike interest rates for the first time in seven years.
Disclaimer: This economic update is provided by FC Exchange a Global Reach Group Company, industry leaders in foreign exchange. Authorised affiliates are permitted to reuse content.
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