GBP, EUR, USD, AUD Exchange Rate Forecast: Inflation Data Ahead, Brexit Negotiations in ‘Deadlock’

16 October 2017 by News Desk   |   SHARE  

The pound (GBP), Australian dollar (AUD), US dollar (USD), euro (EUR), and Canadian dollar (CAD) could be influenced by a number of factors this week; currency experts FC Exchange take a look at what could impact your exchange rate.

GBP – Inflation data ahead, can May unlock the Brexit deadlock?

Last week

-The pound experienced some adverse Brexit movement last week, mainly after Phillip Hammond reiterated the risks of Brexit, and chief EU Brexit negotiator Michel Barnier stated that a ‘deadlock’ had been met over how much the UK will pay when it leaves.
-The pound managed to retrace its losses towards the end of the week after German newspaper Handelsblatt reported that Barnier could be prepared to offer Britain a two-year transition period. GBP/USD rallied over 100 pips.
-UK industrial production jumped from 1.1% to 1.6% on the year in August, manufacturing production rose from 2.7% to 2.8%, and construction output climbed from 2.7% to 3.5%, despite forecasts for weaker numbers.
-The Bank of England (BoE) reported that UK banks would be tightening their lending availability in coming months as Britain’s debt levels reach concerning levels.
-Additionally, the Royal Institute of Chartered Surveyors (RICS) noted that the UK housing market had experienced a month of weakness in September.

Week ahead

There could be a few swings in the GBP exchange rate this week with some important events taking place. Tuesday could be a particularly exciting day with Bank of England Governor Mark Carney appearing before the Treasury and testifying to lawmakers, amid UK inflation data being published. The annual consumer price index figure is expected to climb from 2.9% to 3.0%, with September marking 0.3% growth. If the data prints in line with forecasts, UK inflation will reach a five-year high, adding further pressure to the Bank of England to hike interest rates. Meanwhile, Wednesday will see UK labour market data published, such as unemployment rate and average weekly earnings figures. UK retail sales will follow on Thursday, and public finances figures will be out on Friday. Additionally, any developments in Brexit could create some GBP movement. Theresa May will be meeting with EU negotiators on Monday to try and unblock the current situation in the hope of progressing to trade talks soon.

EUR – Markets eye Catalonia and Austria developments

Last week

-The euro reached a two-week high versus the US dollar (EUR/USD) last week after some positive ecostats from the currency bloc emerged supporting speculation that the European Central Bank (ECB) will soon begin tapering its quantitative easing (QE) programme. The euro posted its most impressive weekly rise in over a month.
-ECB President Mario Draghi poured cold water on hopes from Germany that the central bank would be increasing interest rates, saying they’d remain at their current levels ‘well past’ the end of the QE programme.
-Catalonia situation continued to cause concerns in the market.

Week ahead

This week could be fuelled by politics as markets wait for the outcome of Catalonia’s bid for independence and investors digest the results of Austria’s election. The German and Eurozone ZEW surveys are out on Tuesday which could create some substantial EUR exchange rate movement. European Central Bank Chief Mario Draghi will also speak in Frankfurt on Wednesday, and his comments could be highly influential on the single currency. The second half of the week is quiet regarding economic data, so the euro is likely to react to events elsewhere.

USD – US inflations falls short for sixth time in seven months

Last week

-US inflation data disappointed last week; the consumer price index reached 2.2% in September on the year, failing to reach the forecast 2.3%, while the core figure stagnated at 1.7%. This is the sixth time in seven months that US inflation has fallen short of expectations causing speculation to rise over whether the Federal Reserve will hike interest rates once again this year.
-US advance retail sales also came in below forecasts at 1.6% rather than 1.7% in September.
-Consumer sentiment in the US made a surprise surge to a 13-year high in what’s thought to be a reflection of falling petrol prices after recent hurricanes created a jump in costs.

Week ahead

Friday could be an interesting day for the US dollar when Federal Reserve Chief Janet Yellen discusses monetary policy since the Global Financial Crisis (GFC). There are a host of medium-tier data releases due out, but none of high importance this week. Any developments in politics or escalation of tensions with North Korea are likely to impact US dollar movement, so investors will be watching broader events while the data calendar is light.

JPY – All eyes on the election

The yen is likely to fluctuate on political developments in the next few weeks as investors prepare for the 22nd October snap election. The election will play a critical role in determining the nation’s economic policy, and some recent polls have suggested Prime Minister Shinzo Abe is likely to strengthen his hand by calling the vote. Last week the Japanese yen managed to attain its strongest level in two weeks versus the US dollar (JPY/USD) after polls suggested Abe’s chances of maintaining his dominant position were looking positive.

CAD – Inflation forecast to jump

The Canadian dollar exchange rate may experience some positive movement on Friday if the latest Canadian inflation figure falls in line with expectations. The annual inflation number is expected to jump from 1.4% to 1.7% in September and may cause speculation regarding the Bank of Canada’s (BoC) next interest rate increase to rise.

AUD – Labour market data in focus

The Aussie dollar was offered some positive news last week following upbeat ecostats from Australia’s largest trading partner, China. Chinese imports managed to rise to 19.5% in September on the year, ignoring forecasts for a smaller increase to 16.5%. Chinese growth numbers are due out on Thursday and may give the Aussie some further opportunity to move. Meanwhile, the Aussie could be in for some interesting movement this week with the release of Australian labour market data on Thursday. The unemployment rate is forecast to remain stable at 5.6% in September, while the employment change figure is expected to come in at 15.0K.

SEK – Rate hopes dwindle

Last week the Swedish Krona fell against the pound after Swedish inflation data showed consumer prices had failed to climb as expected. Investors sold off the SEK as they priced out the possibility of shifts to tighten monetary policy.

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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