3 exchange rate moving developments to watch out for this week
On 27 October, the third quarter UK Gross Domestic Product dealt a substantial blow to the appeal of the pound as economic growth was shown to have slowed both on the year and on the quarter. While the domestic service sector continued to expand at a good pace, the indicator was dragged down by a particularly sharp contraction within the construction industry. As traders become increasingly concerned by the unevenness of the UK economic recovery, economists were inclined to dial back their bets for the timing of the first interest rate rise from the Bank of England (BoE).
As data over the following days failed to demonstrate particular strength, this saw the pound remain on a weaker trend against the majority of rivals throughout the remainder of the week.
Stronger volatility was in store for the markets on 28 October evening, however, as a result of the latest Federal Open Market Committee (FOMC) policy meeting. Although interest rates were left unchanged, in line with investors’ expectations, the US dollar was sent on a bullish run as policymakers indicated that a December rate hike remained on the table. With higher-risk currencies rapidly shedding value overnight, the euro was also pushed into a downtrend as a result of its negative correlation with the ‘Greenback’.
Nevertheless, with the release of a stronger-than-expected German unemployment change figure and disappointing third quarter US GDP/Personal Consumption reports, the euro has since rallied. With the odds of an imminent move on interest rate from the Fed declining on the back of this unimpressive data, the US dollar has naturally softened somewhat.
The pound/euro exchange rate ended the last week in the region of 1.38 but has since been buoyed to 1.39, while the pound/US dollar exchange rate has slumped from 1.53 to 1.52.
So, what should we be looking out for this week?
Pound sterling (GBP) exchange rate volatility anticipated with BoE rate decision
While the slowing of economic growth evidenced on the latest UK GDP report is likely to overshadow the prospects of sterling into the coming week, this negative trend could be reversed by any hawkish indications from the BoE. The central bank’s upcoming interest rate decision and meeting minutes will be the most significant influence upon the pound, particularly if policymakers mimic the more optimistic tone of the Federal Reserve.
Should the nine-person Monetary Policy Committee (MPC) remain dovish and suggest a greater policy divergence with the FOMC, however, sentiment is unlikely to see any particular improvement.
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.
Eurozone PMIs may shore up euro (EUR) conversion rate further
Although the upcoming German and Eurozone PMI results are not entirely fresh data, there is expected to be some movement from the earlier provisional figures. Forecasts suggest that a general uptick will be evidenced, with Eurozone Services and German Manufacturing in particular expected to strengthen. Should these offer greater reassurance of a strengthening Eurozone economy, the euro could enjoy an uptrend.
US dollar (USD) exchange rate may strengthen on US Non-Farm Payrolls
Despite 29 October’s weaker GDP reading, the prospect of a December interest rate rise from the Federal Reserve could be shored up by October’s Non-Farm Payrolls report. Estimates suggest that job creation will have increased on the month by 152,400, with traders hoping for a stronger reading after the disappointment of September’s shortfall. If job creation is revealed to have been robust, this is likely to offer some additional encouragement for an imminent interest rate increase from the FOMC.
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.