Three exchange rate moving developments to watch out for this week

In the week ending 24 April, the pound was able to hold above the 1.51 level against a broadly softer US dollar and trend in the region of 1.3950 against the euro.

Demand for the British currency increased as minutes from the latest Bank of England policy meeting (BoE) indicated that borrowing costs could be adjusted earlier than markets had priced in.

Although slightly disappointing, UK retail sales figures took some of the shine off the pound’s performance. The British asset’s rally lasted into the weekend as pared back US rate hike bets and the ongoing Greek negotiations had a negative impact on the ‘Greenback’ and the common currency.

Next week, there are three key things which could trigger exchange rate movement for the pound, euro and US dollar.

Federal Open Market Committee (FOMC) policy statement

The last batch of FOMC minutes were surprisingly dovish in tone and caused broad-based US dollar losses. Since the meeting to which those minutes referred took place, the US has released a run of disappointing economic reports, including subpar US non-farm payrolls, retail sales and manufacturing figures.

As the Fed has repeatedly indicated that domestic data will be a driving force behind the timeline it adopts for increasing interest rates, the FOMC is expected to be even more cautious this time round. If that proves to be the case, the US dollar’s bearish relationship with peers like the pound and euro is probably going to continue in the short term.

The statement is due to be issued on Wednesday, following the publication of US growth data.

UK first quarter growth data

Although the odds of the BoE increasing interest rates in 2015 were increased by recent encouraging UK figures, a set of below-forecast ecostats could push an adjustment back again and see the British currency reverse its recent gains.

Of the upcoming week’s UK reports, the nation’s first quarter growth data is likely to have the most influence over the direction taken by the pound.

An easing in expansion would undermine demand for the sterling. The figure is due out on Tuesday and no estimate has yet been published. The UK economy expanded by 0.6 percent in the final quarter of last year, quarter-on-quarter, resulting in annual growth of 3.0 percent.

Greek negotiations

For three months, the prospect of a ‘Grexit’ has been weighing on the euro, and so far there seems to be no progress in the Greek bailout negotiations.

If the nation fails to reach an accord with its creditors in the next week, it increases the likelihood of Greece defaulting on its debt obligations and leaving the Eurozone by accident.

Any steps towards resolution will bolster the euro this week, but more delays and excuses are likely to push the common currency lower.  

Contributed by TorFX

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