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The pound initially plummeted on 13 October as a return to negative inflation in the UK weighed on Bank of England (BoE) interest rate hike expectations.
However, after the UK’s employment report showed a surprising decline in joblessness, sterling staged a rebound. Gains in the GBP/USD pairing were also because odds of the Federal Reserve revising borrowing costs in 2015 continued to fall.
The GBP/EUR pairing recovered from a multi-month low before the weekend while the GBP/USD exchange rate was left trending in the region of +1.5450.
So, what should we be looking out for next week?
Pound sterling (GBP) exchange rate to react to growth data
Mixed UK data has seen Bank of England (BoE) interest rate hike bets flip flop in recent weeks, but the nation’s upcoming growth report will help provide more of an indication of whether Britain is strong enough to withstand higher borrowing costs.
If this week’s preliminary third quarter growth data shows a marked slowing in output, the BoE will have more justification for leaving interest rates at record lows for longer. However, if growth prints sturdily, and keeps the UK in line to be one of the fastest growing developed economies in 2015, the pound could rally. The UK’s retail sales report will also have an impact on the pound’s performance, with an uptick in consumer spending being pound-supportive.
Exchange rates can be extremely volatile. Look into registering for regular market updates if you want to stay up-to-date with the latest market movements.
Euro (EUR) exchange rate movement dependent on ECB decision
Whether the euro rises or falls next week largely depends on the tone adopted by the European Central Bank (ECB) in the policy statement following their interest rate decision. Recent data for the Eurozone and particularly for its largest economy, Germany, has been disappointing of late so the central bank might hint at the possibility of quantitative easing being expanded in the near future.
If the central bank implies it’ll be adjusting policy before the close of the year, the euro may reverse its recent gains against peers like the pound and US dollar.
Other Eurozone data to be aware of this week includes the nation’s current account and construction output numbers.
US dollar (USD) conversion rate could fall if manufacturing output slows
Compared with last week, high profile US reports are in short supply over the next seven days, but there are a couple of figures worth attending to. Initial jobless, continuing claims and existing home sales data may have an influence on US dollar demand. However, the US flash Markit Manufacturing PMI is likely to have the biggest impact on the ‘Greenback’.
A slowing in manufacturing output would add to the argument in favour of the Federal Reserve leaving borrowing costs on hold into next year, but the index is forecast to rise modestly from 53.1 to 53.4. If the result prints at or above expected levels, the US dollar could gain before the weekend.
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.