The previous week’s hotly-anticipated ‘Super Thursday’ of Bank of England (BoE) announcements turned out to be a bit of a bust, with just one member of the Monetary Policy Committee (MPC) voting in favour of higher borrowing costs and the central bank negatively revising its inflation forecasts.
Investors were left with a bit of a bitter taste in their mouths as the prospect of an interest rate adjustment taking place before 2016 was all but ruled out. The pound fell from multi-year highs against a number of its peers before the weekend and held onto these losses as a fresh week of trading began.
Both the pound sterling to euro (GBP/EUR) and pound sterling to US dollar (GBP/USD) exchange rates went on to drop to one-month lows as the UK’s latest labour market data pointed at slowing wage growth and employment levels.
However, the pound was able to recoup some of its losses thanks to concerns relating to the sustainability of Greece’s debt levels. Unexpected policy action from the People’s Bank of China (PBoC) also weighed on US rate hike projections and limited the appeal of the US dollar.
On 13 August, the pound sterling to US dollar (GBP/USD) exchange rate was trending in the region of 1.5584 while the pound sterling to euro (GBP/EUR) exchange rate was trending in the region of 1.4022.
So, what should we be looking out for in the coming week?
Pound sterling (GBP) exchange rate volatility expected on UK inflation data
The Bank of England might be unlikely to adjust borrowing costs before the year’s end, but positive UK reports over the next couple of weeks will support expectations for the first alteration being made in Q1 2016.
Of next week’s UK data, the ecostat most likely to prompt notable Sterling shifts is the nation’s Consumer Price Index. The rate of inflation came in at 0.0 percent in June. A move back into deflation in July would be pound-negative while accelerating consumer price gains would be pound-positive.
Investors with an interest in sterling will also be looking to the UK’s retail sales report and public spending figures for guidance.
Recent events have shown how volatile exchange rates can be. Look into registering for regular market updates if you want to stay up-to-date with the latest market movements.
Eurozone confidence data to impact euro (EUR) exchange rate outlook
This week’s economic calendar for the Eurozone is looking pretty sparse, with the only notable reports being Friday’s German GfK Consumer Confidence index and the Eurozone’s own sentiment measure.
Rising confidence has the potential to shore up demand for the euro and, barring any positive developments in the UK and US, could see the common currency resume the uptrend it began this week before the Greek bailout deal was called into question.
Hawkish FOMC minutes could send US dollar (USD) surging
The devaluation of the Chinese yuan might have left some investors betting that the Federal Reserve would hold off adjusting borrowing costs until the impact of the action on the global economy could be assessed, but upcoming data could still put a September revision back on the table.
While the US Consumer Price Index is likely to have a notable impact on the policy path pursued by the Federal Reserve, the publication of minutes from the central bank’s last gathering could have a more decided impact on the direction taken by the US dollar.
If the minutes are hawkish in tone, the US dollar is likely to rally across the board. However, if the Fed chooses to signal that it still plans to take a wait-and-see approach, the US dollar could soften against peers like the pound and euro.
Exchange rate movements can be swift and dramatic, so if you’ve got a currency requirement coming up and want to move your funds at the right time you may want to have a chat with a currency specialist.
Contributed by TorFX
TorFX is a specialist currency broker that offers far better exchange rates than you are likely to receive from a high street bank.