Exchange Rate Forecast: GBP/USD Above 1.37, AUD/USD and NZD/USD at Four-Month Highs16 January 2018 by FC Exchange
Exchange rate experts FC Exchange discuss the prospect of higher interest rates in Canada, Brexit developments, the US dollar's fall, and how the Aussie and Kiwi exchange rates are performing.
GBP – Pound breaches 1.37 versus US dollar
– The UK’s industrial production figure noted 0.4% expansion in November, but on the year, the data dropped from 4.3% to 2.5%.
– UK manufacturing fell from 4.7% to 3.5% on the year in November, while construction output showed 0.4% annual growth.
– Towards the end of the week, the British currency rallied to its highest level since the Brexit referendum against the US dollar, surging above the $1.37 threshold.
– The pound’s jump came after a report that Spanish and Dutch finance ministers would help to secure a Brexit deal that allowed the UK to retain a close relationship with the EU. Pre-Brexit referendum, the GBP/USD exchange rate had been trending at around $1.50.
The pound may feel the impact of Brexit back and forth this week as reports hit the markets from both sides. EU negotiator Michel Barnier has hit back once again on the topic of banking saying that Britain shouldn’t expect a deal that would allow banks to continue business freely in the Single Market. This development could result in some British companies resorting to backup plans to leave the City.
Regarding economic data, Tuesday could be an interesting day for the pound when the UK consumer price index hits the market. The annual figure is expected to climb down from the previous 3.1% reading and reside at 3.0% in December. However, should the figure remain higher, there could be a surge in the pound as pressure mounts on the Bank of England’s (BoE) Monetary Policy Committee (MPC) to increase interest rates. Additionally, a few Bank of England representatives will be speaking throughout the week which could also influence sterling.
EUR – German coalition prospect props up euro
– German industrial production jumped last week, coming in at 5.6% in November on the year, up from 2.8% the previous month. Additionally, Germany’s trade surplus widened.
– Eurozone unemployment slid to 8.7% in November—the lowest level since January 2009.
– The euro was offered some support last week as it appeared that a ‘grand coalition’ could be made between two of Germany’s leading parties, which would eliminate the risk of a snap election.
The euro has started the week trading above the $1.22 level versus the US dollar— highs not seen since the end of 2014—as investors look towards tighter monetary policy in Europe. Additionally, Bloomberg’s first monthly survey of the year regarding growth in the Eurozone has seen economists up their forecasts. Those taking part said they expected the currency bloc to see 2.2% growth in the year ahead.
Concerning economic data, the euro might feel the impact of Wednesday’s final Eurozone inflation data publication for December. The figure is expected to fall from 1.5% to 1.4%.
USD – Greenback drops against other majors
– The US inflation reading slipped last week, printing at 2.1% on the year in December after November’s 2.2%. Advance retail sales also disappointed, with December’s result showing only 0.4% expansion rather than the 0.5% predicted. Speculation continued as to whether the Federal Reserve may hike interest rates again after a stronger reading of core consumer prices and a backdrop of a strengthening labour market.
– The greenback declined by around 1.0% on Friday, dropping to a three-year low against the euro. The dollar index also reached a three-year low.
The US dollar has a few key events that may sway it in the week ahead, but the most influential release will come on Friday with the University of Michigan’s consumer confidence index. Confidence is expected to climb from 95.9 to 97.0 which could bode well for the greenback. A few Federal Reserve members are speaking in the week ahead, and the central bank will also release its Beige Book on Wednesday which may offer some hints into the Fed’s outlook. US politics could also create market movements.
AUD – Aussie hits four-month high
– The AiG performance of construction index softened to 52.8 in December following November’s 57.5 reading.
– Meanwhile, sentiment inched higher to 122.0 in the week through January 7th, up from 116.5 the week before.
– Building approvals surprised markets when the data came in at 17.1% in November, a far cry higher than the 4.6% forecast.
– The Australian and New Zealand dollars have started the week at a four-month high against the stumbling US dollar.
– Australian employment change and unemployment rate numbers will reach the market on Thursday.
NZD – New Zealand dollar rally continues
– The New Zealand dollar continued to rally last week, despite a lack of economic data to support the commodity currency. It’s thought the NZD exchange rate has taken advantage of a weaker US dollar and is benefitting from positive attitudes towards global growth which is supporting commodities, as well as widened risk appetite.
– At the start of the week, both the Australian and New Zealand dollars attained a four-month high against a weaker greenback.
– New Zealand business manufacturing data will be out on Thursday.
CAD – BoC rate meeting in focus
– Canadian housing starts beat forecasts, to come in at 217K, rather than 211K.
– Meanwhile, building permits contracted at -7.7%, a drop below the -1.0% expected.
– The Canadian dollar enjoyed a rally on Friday last week against the greenback as investors bet an interest rate hike by the Bank of Canada (BoC) could be on the cards and oil prices firmed.
– Wednesday will see the Bank of Canada make its January interest rate decision, with some expecting an increase from 1.0% to 1.25%.
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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