Currency movements over the week ahead are likely to be influenced by the full calendar of meetings and subsequent reports planned across the globe. The Federal Reserve and Bank of England will be each chewing their pens over how to portray the current view on their respective economies.
Particularly significant will be the meeting of the Federal Reserve on Tuesday. The US Dollar is refusing to step out of the spotlight and is largely determining movements in other currencies as it continues to drop. Last week saw the Dollar Index, which measures the strength of the Dollar against a basket of other currencies, suffer losses for the ninth week in a row – the longest succession of losses since 2004. This is due to mounting signs that the US economy is slowing. It was revealed at the end of last week that 131, 000 jobs were lost in July. Economists predicted that the private sector would have added 100, 000 jobs throughout the month but the actual total was revealed as a much lower 70,000.
The more the words ‘double-dip recession’ are muttered, the more the Dollar is likely to weaken in response to something that hasn’t actually happened– in a ‘chicken and egg’ case, investors will speculate on the likelihood of such a double-dip crisis and take their positions accordingly. It is becoming increasingly likely that the Federal Reserve will have to act ‘not if but when’ to deal with the slowing economy. Markets will be keenly watching tomorrow’s Federal Reserve meeting to see if a decision will be taken to make more bond purchases in order to re-stimulate the economy.
The report to watch on the Pound Sterling front will be Wednesday’s quarterly inflation report which will outline the Bank of England’s outlook for both inflation and interest rates over the next three months. Interest rates continue to be a contested topic with committee member Andrew Sentence doing his best to suggest that the time is ripe for a rise to curb inflation, whilst Governor Mervyn King does equally does his best to suggest that a rise would be far too hasty. Any suggestion of an interest rate rise is likely to make the Pound stronger – great for anyone UK based requiring a transfer into another currency from Sterling.
The Euro hit three month highs against the US Dollar last week. Movements against the Pound tend to be quite volatile as data out of both the UK and European economies is predominantly positive but still slightly mixed. A measure of investor confidence in the Eurozone by Sentix has suggested that optimism towards the area is growing. Germany in particular has given the Euro a helping hand with export and current account data coming in well above expectations today. Certainly, the negative focus on the Dollar is drawing attention away from Europe and for now the Euro seems steady.
Sterling Rises on Hopes of EU Softening Tone on Backstop