US GDP could be the key to the currency markets

Yesterday saw the week start off very quietly on the currency markets, with almost no data of note and as a result very limited movement on any of the major currency pairings. Rates for buying Euros held steady around a cent below the highest levels for eight years. While rates for buying US Dollars remained pretty constant, albeit not in such positive territory.

Today however is a much busier day on the markets, and in fact we have already seen some quite large moves thanks to German GDP figures which came out earlier this morning. The figures were in line with expectations – 0.3% growth in the quarter and 1.8% for the year – and this was taken as a good solid positive for the Eurozone’s largest economy and as such the Euro has made some gains; around half a cent against both the Pound and the Dollar. 

Next up this morning we hear from some of the world’s central bankers, with the RBA’s governor Glenn Stevens speaking first and then the BoE’s governor Mark Carney testifying before the Treasury Select Committee. In both countries the focus is on interest rates and whether the central banks will make any changes to their benchmark figures in the coming months, although with quite different expectations in mind.

In Australia there is talk of interest rate cuts to support the housing market and to boost growth, whereas in the UK there is talk of interest rate rises. The possibility of interest rate cuts in Australia is a lot more immediate and the governor’s speech this morning could give key indications on if and when this could happen – cuts in rates would likely weaken the Dollar making it cheaper to buy whereas no cuts or delays in cuts could see the Dollar strengthen. In the UK, interest rate rises are some way off according to Mark Carney’s recent comments, which at the time he made them caused the Pound to weaken significantly – is this likely to remain the same or could the recent negative inflation actually make the chances of interest rate rises even less likely and cause more pressure on the Pound?

Later today the US takes centre stage with a raft of minor data including personal consumption and trade balance figures, but the main focus will be on the Q2 GDP revision which is due out at 13.30. The Fed is almost certainly more concerned with future growth but with expectations of a significant positive revision, this good news could certainly add credence to the idea of imminent US interest rate rises, which have been a major focus of the markets for the last couple of months. US interest rate rises will almost certainly give the Dollar a significant boost, while potentially weakening the Euro too. This data release is a major indicator of which way things could go and could in fact hold the key to what we can expect over the coming months…

With lots of key data out and critically some of the market’s big current concerns being addressed, make sure you stay in close contact with your Currency Index account manager to be kept informed of exactly what is happening and how it is likely to affect your upcoming currency purchase.