After Greek Prime Minister Alexis Tsipras announced that he would be holding a referendum to let the populace decide whether or not to accept the austerity measures proposed by creditors, the euro tumbled across the board.
The pound sterling to euro (GBP/EUR) exchange rate surged to a fresh seven year high of over 1.43 and safe-haven assets like the US dollar jumped in response to the turmoil. The euro went on to stabilise as the week progressed in spite of the expiration of the Greek bailout and the nation missing its debt repayment to the International Monetary Fund (IMF).
Sterling also lost ground as the Bank of England’s (BoE) chief economist hinted that UK interest rates were as likely to fall as climb in the year head, although ‘Cable’ did recover from a two-week low after the US non-farm payrolls report printed below forecast levels.
We can expect further notable exchange rate shifts over the next five days.
These are the three main currency market-moving events of the week ahead:
Sunday could prove to be D-Day for Greece. The nation’s creditors have refused to discuss another bailout agreement until the outcome of the vote is known, but both a ‘yes’ and ‘no’ result come with their own complications. The Greek PM is pushing the public to vote ‘no’ and has claimed that this result would give him more power to negotiate a better deal. However, various European officials have asserted that if the nation refuses to accept austerity, it is declaring to the world that it no longer wants to be part of the Eurozone. A ‘yes’ outcome, on the other hand, could lead to Tspiras being ousted and a new election being held. Whatever the result, Sunday’s referendum is likely to be the biggest cause of exchange rate movement next week.
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.
US FOMC meeting minutes
Federal Reserve interest right speculation has variously supported and undermined demand for the US Dollar in recent months. While the first-quarter economic downturn saw some investors bet that the Fed would delay revising borrowing costs until 2016, ecostats picked up in the second quarter and put a September rate adjustment back on the table.
The minutes from the latest Federal Open Market Committee (FOMC) may provide more of an insight into the Fed’s intentions. If they intimate that the central bank is considering two revisions before the end of the year, the US dollar could surge across the board.
However, it should be remembered that the Fed minutes were taken prior to the publication of the US non-farm payrolls report. The employment gain and average earnings numbers both fell short of forecasts and could have a negative impact on the Fed’s interest rate policy.
BoE interest rate decision
As the central bank is unlikely to make any adjustments to fiscal policy, the BoE decision is likely to have less of an impact on pound sterling trading than the week’s main UK ecostats, including the nation’s manufacturing and industrial production numbers. However, investors will start looking ahead to the publication of minutes from this gathering and speculating on whether any policymakers voted for an immediate hike.
A divergence in the Monetary Policy Committee (MPC) would be hugely pound supportive, so we can expect sterling volatility in the weeks ahead.
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
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