Change of fortunes for Sterling Exchange Rates

Last week was a critical turning point in the currency markets with a change in trends for many of the major pairs, with Sterling falling to the bottom of the pile in the short term. Last Monday’s events in China sent shock waves through stock and currency markets although the initial reactions were largely recovered in the days to follow. As the dust settled the USD came back to the top of the pile as investors seek assurance of the save haven currency, and with positive data increasing speculation for a change in interest rates this month. The global situation has also crucially kick started the Euro’s recovery which has been viewed as being undervalued for some time now.

Forecasts for the rest of year now appear very bleak for Sterling with the highs of this year now not expected to be seen again until 2016. GBP/USD has suffered its biggest weekly loss in the last 5 years and is on the verge of beginning another negative trend, following GBP/EUR that turned at the beginning of the week. The only Sterling exchange rates that have benefitted are those linked to commodity prices such as the Aussie and Kiwi Dollar and South African Rand which all remain weak. With a new month ahead and lots of data to be announced, the pound is likely to be very fragile to further losses if any figures disappoint. GBP/EUR has room down to 1.32 if 1.35 support does not hold, and GBP/USD looks to target 1.50 and below, particularly if rate hikes do go ahead this month across the pond.

Sterling’s selling pressure was evident on Friday after positive growth and business investment data. The UK was confirmed to have grown by 2.6% in the last year and rates spiked after the announcement, only to be sold back down again within just 30 minutes. The week ahead is likely to remain volatile with many daily releases for the majors. The key announcements to look out for are as follows:

Tuesday:
5:30am (AUD) – RBA rate decision
9:00am (EUR) – Manufacturing PMI
9:30am (GBP) – Manufacturing PMI
10:00am (EUR) – Unemployment Rate
3:00pm (USD) – Manufacturing PMI

Wednesday:
2:30am (AUD) – Gross Domestic Product
9:30am (GBP) – Construction PMI
10:00am (EUR) – Producer Price Index

Thursday:
9:30am (GBP) – Services PMI
12:45pm (EUR) – ECB Rate Decision
1:30pm (EUR) – ECB Press Conference
3:00pm (USD) – Services PMI

Friday:
9:30am (GBP) – Consumer Inflation Expectations
10:00am (EUR) – Gross Domestic Product
1:30pm (USD) – Non-farm Payrolls/Unemployment Rate/Average Earnings