Mixed news for Euro and US Dollar rates

The Pound ended last week around 1% lower against the Euro, as the end of July brought quiet trading conditions, in contrast to recent weeks. The Eurozone’s GDP figures, announced on Friday, showed the single currency zone’s growth rate halved for April to June, compared to the 3 months before; but inflation was up, steering the bloc away from dangerous deflation territory.

The mixed news was taken as a positive for the Euro, which ended Friday around a cent off its strongest post-Brexit levels.

The story was similar in the USA, where growth to June was announced last week at 1.2%, well down on forecasts of 2.6%, and first quarter figures were also revised down. However consumer spending was much higher than expected, and the Federal Reserve is still expected to raise US interest rates soon. The Dollar ended the week cheaper by about 1% against the Pound.

UK interest rate cut this week?
This week we have a busy week of data releases (see below) as we enter August, and with thinner holiday trading we could see some volatility in exchange rates return. Realistically, the focus for the Pound will be almost entirely on Thursday’s interest rate announcement, when we expect Mark Carney to announce a 0.25% cut in base rates. At the same time, should the Bank’s Quantitative Easing programme be extended, or a further cut in interest rates be announced or discussed in the accompanying press statement, we would expect to see the Pound fall further in value. Conversely, should the Bank keep interest rates on hold, sterling would be likely to see an improvement.

Given the mixed data now coming out of the UK, Europe and the USA, there is not yet a clear consensus on the state of the world’s main economies, and as such there is uncertainty over the relative values of the world’s currencies. For now, markets have settled on a significantly lower Pound post-Brexit, but rates are likely to be on the move again in the coming weeks as July’s data starts to feed through and give us a clearer idea of the true effects of the last few tumultuous weeks’ events.

Monday
0900 – Eurozone manufacturing
0930 – UK manufacturing
1445 – US manufacturing

Tuesday
0230 – Australian trade balance
0530 – Australian interest rate decision
0815 – Swiss retail sales
0930 – UK construction
1000 – Eurozone producer inflation

Wednesday
No major data

Thursday
0230 – Australian retail sales
1200 – UK interest rate decision
1230 – Bank of England speech

Friday
1330 – US non-farm payrolls
1330 – Canadian unemployment