Will sterling maintain its positive outlook? | Smart Daily Currency Note

Sterling

Sterling, having enjoyed a strong period last week following the release of positive figures across the manufacturing, construction and service sectors, weakened against the US dollar on Friday. Growing employment data from the United States forced the UK currency to retrace some of its gains from earlier in the week by around a cent and weakened for the first time in three days against the euro. Prices however were nonetheless supported by official figures showing the trade deficit to have narrowed more than expected in April, improving to 8.2 billion pounds. Speculation still grows that the Bank of England under the stewardship of Mark Carney will alter its quantitative easing strategy as the UK continues to avert a triple-dip recession. Some suspect he will implement a growth mandate alongside the existing 2% inflation target which could enable the bank to step up its asset purchase facility to meet the requirement and cause a sell-off in sterling, though the case for increased asset purchases has been weakened by UK data striking a positive note recently. Manufacturing Production figures emerge on Tuesday and the Claimant Count unemployment change report around midweek will give more of an indication of underlying strength, or lack thereof, in the economy; call in throughout the week for the latest rates and developments in sterling value.

Euro

German industrial production registered the best expansion for over a year before the weekend following sluggish construction output in part due to the long winter. Production activity in Europe's biggest economy grew 1.8% in April with Germany now charting consecutive growth figures for the sector. However, The Bundesbank however pared down its forecast for the economy on Friday, indicating an expectation for a slow but sustained recovery as trade balance data improved due to lucrative exports with Asia and the US. The European Central Bank is likely to adopt a neutral tone for monetary policy over the rest of the month and might be encouraged to consider furthering their quantitative easing designs later in the summer alongside fresh policy measures to deal with territories increasingly relying on monetary support. It will be a relatively quiet week for data directly regarding the single currency, though French Industrial Production figures and a German Constitutional Court ruling on its relationship with the ECB and its monetary transactions policy. Stay in touch throughout the week with Smart.

US dollar

The US dollar found support at the end of last week as Non-Farm Payrolls data detailed that employment levels had risen by slightly more than expected. Many were anticipating employment data from the US to show a decline following the reports released earlier in the week, but the Bureau of Labor Statistics detailed that 175,000 jobs had been added to the economy in May - a slight increase on predictions, although the overall unemployment rate rose by 0.1%. The US dollar strengthened in most of its major pairings, though gains were diluted as the Federal Reserve stated that it would maintain its bond buying programme until the labour market improves substantially. That would involve four consecutive months of job growth averaging at least 200,000 according to Chairman of the Federal Bank. Friday's data falls short of that mark, though the statement may help to provide more clarity and go some way as to settling previously feverish expectation as to when quantitative easing might be tapered back. Whilst midweek heralds the Federal Budget Balance report along with Industrial Production figures, important Retail Sales data on Thursday will precede the next University of Michigan Consumer Sentiment Report and PPI inflation figures. Many will be hoping the retail data will build on strong consumer sentiment in recent weeks as demand will be crucial in shepherding the world's largest economy further along the road to recovery.

Worldwide

Elsewhere, the Canadian dollar performed well on Friday after better than expected labour data was released. Other data released from Canada this week includes monthly manufacturing figures which are forecast to show a small improvement on last month's figures and traders will keep a close eye on this release following the Canadian dollar's strength before the weekend with the nation's strongest employment gains in more than a decade. Much focus early this week will be on Japan as the central bank make a statement on monetary policy on Tuesday. Markets will be looking to identify more definite action than Prime Minister made last week in his speech which sparked a drop in equity market values and Japanese yen strength as the currency moved back below the 100 mark against the US dollar. Later in the week the interest rate decision from New Zealand and employment figures from Australia are both released overnight on Wednesday. Currencies from both antipodean regions have dropped considerably in recent weeks and central banks from each currency are considering their monetary policy positions to deal with deepening economic problems. Be in touch with your trader throughout the week for information and prices from your currency pair.