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The recent currency intervention from the People’s Bank of China (PBoC) had a lingering impact on the foreign exchange market this week but much of the movement seen by the GBP, EUR and USD exchange rates was the result of domestic developments.
For example, the pound was able to surge against both the euro and US dollar earlier in the week (hitting 1.42 against the former and 1.57 against the latter) as the UK’s slightly better-than-expected Consumer Price Index for July gave rise to improved Bank of England (BoE) rate hike expectations.
However, the pound reversed its advance over the second half of the week as the UK’s retail sales report fell flat. Another cause of the declines in the GBP/EUR exchange rate was the news that, with the approval of all of the principle European parliaments, Greece unlocked its third bailout in time to make a debt repayment to the European Central Bank (ECB).
The GBP/USD exchange rate also experienced volatility as a result of the minutes from July’s gathering of the Federal Open Market Committee (FOMC). The minutes neither banished the prospect of a September rate adjustment from the Fed nor encouraged it, with the result that the US dollar initially fell before recouping declines in a risk-off environment.
Although Chinese slowdown concerns and struggling commodity prices will continue having an impact on currency-market movement, domestic ecostats and central bank policy will be dictating the direction taken by assets like the pound, euro and US dollar in the days ahead.
On 20 August, the pound sterling to US dollar (GBP/USD) exchange rate was trending in the region of 1.5666 while the pound sterling to euro (GBP/EUR) exchange rate was trending in the region of 1.4026.
So, what should we be looking out for next week?
UK Q2 GDP to impact pound sterling (GBP) exchange rate
Of the UK data scheduled for release next week, the reports with the most potential to inspire pound sterling exchange rate movement include the GfK Consumer Confidence Survey for August and preliminary second quarter growth data.
Given how much of an impact UK reports will be having on Bank of England interest rate hike expectations in the weeks and months to come, investors will be hoping for the data to print positively if hopes for an interest rate adjustment taking place in the first quarter of 2016 are to be realised.
An uptick in consumer sentiment or a sturdy growth print for the three months through June would be pound supportive and could help the British currency gain on peers like the US dollar and euro.
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.
Ecostats to impact euro (EUR) exchange rate movement with Grexit fears banished
The threat of Greece exiting the Eurozone was finally lifted when the Hellenic nation received its third bailout and with a semblance of calm returning to the currency bloc, domestic reports will start having more of an impact on demand for the euro.
There are a fair few potentially market-moving ecostats scheduled for publication over the course of the week, including 24 August’s preliminary Services, Manufacturing and Composite PMI’s for the Eurozone and its largest economies.
Germany will also be releasing its IFO Current Assessment, Business Climate and Expectations reports on 25 August, followed by retail sales and inflation figures on 28 August.
An uptick in consumer price pressures in the Eurozone’s most dominant economy could give the Euro a boost and send the common currency trending higher.
US dollar (USD) conversion rate dependent on Fed rate hike bets
The FOMC meeting minutes might have done little to support the prospect of rates being adjusted in September, but they didn’t rule the possibility out either. The Fed has frequently asserted that domestic data will dictate when the first adjustment to borrowing costs will be made, so if enough high-profile reports print well over the next couple of weeks the September gathering could still be D-Day.
Fed rate bets are likely to be affected by both next week’s US Consumer Confidence data for August and the nation’s second quarter growth numbers. As is the case in the UK, positive reports = higher hopes for rate hikes and a stronger domestic currency.
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.