Pound Sterling exchange rates have held up pretty well over the last week, with GBPEUR trading at 1.17 and GBPUSD trading at 1.2670- this was following strong PMI data out of the UK which suggested strong demand across all sectors in the UK- the Bank of England is still not looking to cut rates anytime soon and I think the main trend across markets now will be that traders and analysts were too aggressive on their bets on rate cuts- Central Banks will cut rates this year, but nowhere near as quick as analysts initially expected and there wont be as many cuts as expected either. With inflation still high in the UK it doesn’t make sense to cut rates just yet until there is evidence it is sufficiently falling- right now markets are suggesting August, and the best way to play this move is to not try and time it, the data will tell us when the Central Banks will look at cutting.
As far as data is concerned this week, we do not have many noteworthy releases out of the UK, however, we do have data releases from across other economies that we may see some volatility from. On Monday the main release is a speech from ECB President Lagarde, we may not hear anything new in regards to forward guidance, but these speeches are always important just incase something is said that will help us work out what the ECB’s next move will be.
On Tuesday we have some releases out of the U.S of high importance, the first is Durable Goods orders for January, which is expected very weak at -4.8%- if we see the release at this level or worse then I would expect the Dollar to weaken, this release is followed by U.S consumer confidence which is expected the stay stable- we have seen demand stay high in the U.S so I expect consumer confidence to be the same.
On Wednesday we have Eurozone consumer confidence which is expected weak, alongside economic and industrial sentiment, all expected weak- which generally will be good for GBPEUR exchange rates- later in the afternoon we have U.S GDP numbers which are expected lower at 3.3% for Q4- if we see this lower number we may see the U.S Dollar weaken further through the day.
On Thursday afternoon we have Core PCE price index data for the U.S, which will show a lower number at 2.8%, which essentially shows that the inflation rate in the U,S is lower again and approaching the 2% target, this is still not enough to warrant a rate cut but it will give evidence that they are getting close. This alongside jobless claims data and income and expenditure figures will potentially give the U.S Dollar a strong afternoon.
On Friday, we have Core inflation data out the Eurozone, which we are expecting to see a lower figure of 2.9%, this will potentially weaken the Euro as it means rate cuts are getting closer as also the Eurozones inflation data enters the 2% area.Later in the afternoon we have ISM Manufacturing PMI data and Michigan consumer sentiment data from the U.S, both expected stronger, which should give the U.S Dollar a positive end to the week.