Markets Eye North Korea Tensions – Is GBP/EUR Heading for Parity?

14 August 2017 by News Desk   |   SHARE  

Markets are warily eyeing tensions between North Korea and the US, inflation and growth data, and central bank statements this week which are expected to drive market movement, say industry experts FC Exchange.

GBP – Morgan Stanley forecasts GBP/EUR parity in 2018

Last week markets watched sterling drop below 1.1000 against the euro (GBP/EUR) marking a 10-month low. The pound may shift lower still if Morgan Stanley’s predictions are correct with forecasts for a move below parity in early 2018. Brexit woes and political instability are both contributing towards sterling weakness and are likely to remain a pressure on the pound moving forwards. As it stands, the UK will leave the European Union on the 30th August 2019, but so far, negotiations have not been particularly fruitful. UK manufacturing and industrial production numbers have proved lacklustre and therefore offered no support to sterling.

Speculation as to whether the pound could fall further is rife in the market, and it’s thought that a two-day close below 1.1000 against the euro could signify an official breach and potentially lead to a fall to 1.0500. Tuesday morning is crucial for deciding the next direction for the pound with the release of a host of UK ecostats. Markets will see the publication of the UK producer price index (PPI) and retail price index (RPI) for July. Regular updates on Brexit negations are likely to be scrutinised as discussions between the UK and EU thus far seem to be going nowhere.

EUR – Eurozone gross domestic product numbers ahead

Last week data from the Eurozone began with weak industrial production and export figures out of Germany. However, the ecostats improved towards the end of the week when Germany’s final July inflation numbers fell in line with the previous reading.

Many investors this week will be questioning whether the euro will continue to perform well. The single currency has made gains against both the US dollar and the pound recently due to stability in France driven by newly elected President Emmanuel Macron, and rumours that the European Central Bank’s quantitative easing (QE) programme may soon be tapered. Looking ahead at the data, early in the week markets will be keen to see how Eurozone industrial production and Eurozone and German gross domestic product (GDP) numbers perform. Both of these influential ecostats have the power to create significant exchange rate fluctuations. Also, any statements or comments by the European Central Bank could send ripples through the market.

USD – Will US inflation dampen Fed interest rate decisions?

Tensions between the US and North Korea hampered any US dollar gains last week. Additionally, President Donald Trump’s economic agenda also seems to be stalling which has created further woes for US dollar strength. Regarding data, the US consumer price index readings emerged last week and fell below market consensus at 1.7% rather than the 1.8% expected. Further weakness in inflation may subdue appetite for another interest rate rise by the Federal Reserve this year.

Markets are likely to react to any developments in the tensions between North Korea and the US this week, while US economic data such as retail sales and jobless claims could also create USD fluctuations.

AUD- GBP/AUD drops lower, but risk appetite threatens to pressure Aussie

When the UK snap election was called in June, GBP/AUD was at an interbank level of 1.7000. Since then, Britain has had a weaker hung parliament and witnessed the start of the lethargic Brexit talks which have done little for the pound’s strength. Meanwhile, the Reserve Bank of Australia (RBA) has had rather positive meetings and so it’s unsurprising that sterling has weakened against its Aussie counterpart – GBP/AUD has dropped back down to the mid 1.6000s. However, with interest rates likely stable for some time in Australia, the AUD may be more susceptible to events elsewhere. Increased anxiety between the US and North Korea may see investors favour safer currencies such as the USD, which could potentially lead to AUD weakness.

Influential market data this week

EUR
German gross domestic product
Tues 07:00

EUR
Eurozone gross domestic product
Weds 10:00

GBP
Consumer price index
Tues 09:30

GBP
Retail sales
Thurs 09:30

USD
Advance retail sales
Tues 13:30

AUD
Employment change
Thurs 02:30

(Time in BST)

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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