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AUD, GBP, EUR, USD Exchange Rate Forecast: BoE and Fed in Focus

12 June 2017 by FC Exchange

The week ahead is packed with events that could influence the GBP, AUD, EUR, and USD exchange rates, say industry experts FC Exchange.

Pound (GBP) Exchange Rate Forecast – Sterling Hits Lows as Election Result Weighs

The pound touched seven-month lows on Friday against the euro hitting interbank (IB) levels of 1.1285.

After an initial fall on the shock of a hung parliament after last Thursday’s election result, sterling stabilised and slightly recovered throughout the course of Friday’s session as Prime Minister Theresa May eased fears that she was about to resign. Instead, May met with the Queen to ask her permission to form a Minority Government, propped up by Northern Irelands DUP (Democratic Unionist Party) in a confidence and supply deal.

Labour leader Jeremy Corbyn has also been preparing a proposition for the Queen as he feels there is still a good chance that Labour will have the opportunity to form the next government.

Whilst the market’s focus was on the election results, there was a significant amount of negative economic data released from the UK. Industrial production (YoY) came in at -0.8% against a forecast of -0.3% and manufacturing production registered 0.0% against a forecast of 0.7%. Construction output came in at-0.6% against a forecast of -0.3%.

Given the NIESR’s 0.2% gross domestic product (GDP) prediction for the month before, there is a real chance June’s GDP reading could register negatively which would prove disappointing for sterling with the UK likely to be bordering a recession going into next year.

Today is a very quiet day for UK data, with attention focusing on political events and current Prime Minister Theresa May’s attempts to form an alliance with the DUP and cling on to power. However, highly influential inflation numbers will be released tomorrow. UK labour market data will be out on Wednesday, followed by retail sales figures on Thursday. Also due for release on Thursday is the Bank of England’s (BoE’s) latest interest rate decision and following press conference which could create some market movement. There’s no data scheduled for release on Friday, leaving the pound vulnerable to political developments.

Euro (ECB) Exchange Rate Forecast – ECB Downgrades Inflation Outlook

As with the UK, there were very few data releases in the eurozone last week. This meant the main focus was on the European Central Bank (ECB) interest rate announcement and accompanying policy statement last Thursday.

The ECB upgraded its outlook from downward to broadly balanced and downgraded its inflation outlook, reducing the risk of any interest rate or immediate tapering of quantitative easing (QE) stating ‘We expect extension of QE into 2018 but at a reduced pace’.

ECB member Nowotny stated on Friday that he expects the ECB to start discussing the tapering of QE programme in July and September which could prove extremely euro positive if accurate.

Many ECB and European leaders are pushing the UK to begin Brexit talks as soon as possible which may cause some significant GBP/EUR fluctuations over the course of the next two years.

In the week ahead, both the German and eurozone ZEW economic sentiment surveys will be released on Tuesday which are likely to have a moderate to high impact on the euro exchange rate. Wednesday will bring with it the final German consumer price index (CPI) numbers for May, as well as eurozone industrial production data. Friday will close the week with the release of eurozone new car registrations and the final currency bloc inflation figure for May. ECB comments are also likely to cause EUR exchange rate movements this week.

US Dollar (USD) Exchange Rate Forecast – Will the Fed Hike Rates this Week?

It was a very quiet week for US economic data last week and the USD continued to trade within a relatively tight range, with focus firmly fixed on this week’s Federal Reserve interest rate decision. The market broadly expects the central bank to hike interest rates from 1.0% to 1.25%.

Thursday last week saw a disappointing initial jobless claims figure which came in at 245,000 against a forecast of 240,000. This indicator is important for policymakers with regards to monetary policy decisions and might have contributed to the slight drop in expectations for a Fed hike later this week, dropping from being 100% priced in to 95%.

In the week ahead a plethora of data will come to light, including the US monthly budget statement on Monday, the highly influential US consumer price index and advanced retail sales numbers on Wednesday, followed by the Federal Open Market Committee (FOMC) interest rate decision later in Wednesday’s stateside trading. Friday will close the week with the highly influential University of Michigan confidence number. Federal Reserve members will also be speaking throughout the week which may instigate USD fluctuations.

Australian Dollar (AUD) Exchange Rate Forecast – RBA Keeps Interest Rates on Hold.

The Reserve Bank of Australia left interest rates at 1.5% last Tuesday but this had little impact on the Australian dollar. This week the Australian dollar may experience movement on business confidence and consumer confidence data at the start of the week, as well as highly influential unemployment and employment numbers later in the week.

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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