GBP, EUR, USD, AUD Exchange Rate Forecast – Could AUD Remain Supported?
21 August 2017 by News DeskIt's been a volatile few weeks for markets and there are several events included in this week's exchange rate forecast that could impact currencies in the week ahead, such as central bank speeches and economic data, say industry experts FC Exchange.
GBP – Weaker inflation offers BoE some room to breathe
Last week
The pound began last week on the back foot as inflation held steady at 2.6%, missing expectations of a slight rise to 2.7%. This reduced mounting pressure on the Bank of England (BoE) to increase rates in the near-term as many investors were hoping rampant inflation would encourage policymakers to adjust rates higher for the first time since the Global Financial Crisis (GFC). However, despite a less positive reading, inflation combined with lethargic wage growth, is still squeezing households. Additionally last week, house price growth eased for the third month in a row, creating more downward pressure for sterling.
The pound’s week could have been worse, but wage growth inched slightly higher as unemployment fell to a 42-year low, which offered sterling some support. However, this buoyancy was short-lived and didn’t stop the pound from drifting lower, hovering near levels not seen for eight years.
The week ahead
This week is relatively light in terms of the economic calendar; UK public sector finance numbers will be released on Monday and the second estimate of UK growth will be revealed on Thursday. Additionally, any comments from the Bank of England or developments in Brexit negotiations could influence sterling.
EUR – is the euro strengthening too much?
Last week
It was a topsy-turvy week for the euro; the beginning of the week saw Germany’s annual growth reach four-year highs, while the Eurozone attained six-year highs. These developments allowed the euro to enjoy some support against other currency majors.
However, Thursday saw the release of the European Central Bank (ECB) meeting minutes which sent the euro tanking lower as it revealed policymakers conveyed concern that there was a ‘risk of the euro overshooting potential’. The currency bloc relies on exports and therefore a weaker euro is more beneficial in terms of appeal to buyers placed outside of the Eurozone. As a result, the euro hit three-week lows versus the US dollar (EUR/USD). The single currency managed to stabilise towards the end of the week, and Eurozone construction data showed output in June had risen.
Week ahead
In the euro area this week, preliminary services and manufacturing purchasing managers’ indexes (PMIs) for August will be in focus. Another influence on euro strength may be ECB President Mario Draghi’s speech in Jackson Hole towards the end of the week. Draghi used Jackson Hole as a setting to prepare markets for a round of quantitative easing back in 2014, and so investors will be looking to his speeches this week to see if he will offer any more clues as to when and how the central bank will look to end its stimulus programme.
US – All eyes on Jackson Hole
Last week
It was a quiet start to the week across the pond as the North Korean tensions eased and towards the end of the week, the US dollar was trending higher against both the pound (USD/GBP) and the euro (USD/EUR). Data in the UK printed disappointingly and there was uncertainty over how the ECB will move forwards with a strengthening euro, allowing the buck to climb.
In terms of data, US building permits and housing starts were both disappointing in July; the latter of which fell to just 1.155M units from 1.2M. Markets also received the Federal Reserve minutes which gave little to celebrate, as policymakers appeared increasingly concerned about weak inflation; pausing in their hiking cycle to determine if the slowdown in prices is transitory. In the aftermath of the Federal Open Market Committee (FOMC) minutes, the probability of a December rate hike plunged below 40%.
The week also ended with the University of Michigan’s consumer sentiment index, which came in at its strongest level in seven months, reflecting confidence in the economy and in personal finances as the U.S. stock market holds near record highs.
Week ahead
With political uncertainty in the US and tensions escalating in North Korea as the US and South Korea carry out military drills; many investors are likely to take advantage of recent US dollar strength. In the coming week, the spotlight will be on the Federal Reserve bank of Kansas City’s Symposium in Jackson Hole. At the tail-end of the week, investors will be watching out for the latest US durable goods orders numbers which can be highly influential in the market
AUD – NAB suggest Aussie may stay supported
The pound lost ground against the Australian Dollar last week, but there’s little by way of high-tier data to influence the Aussie in the week ahead. Commodity prices and risk aversion are likely to be key factors when it comes to AUD strength this week. The National Australia Bank (NAB) has suggested that unless there’s a sudden turnaround in US dollar sentiment or a decline in commodity prices, the Aussie is likely to continue trading well supported for the rest of 2017. NAB has suggested against the US dollar, the Aussie will trend at around 75 cents. The US dollar has fallen by 9.5% since the beginning of the year.
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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