Poor week for sterling | Smart Daily Currency Note

Sterling

Sterling performed poorly during the early part of this week, notably reaching a four month low against the euro and experiencing consistent losses against the US dollar. The only real negative data coming from the UK has been data from the British Retail Consortium showing that average retail prices had dropped for the third month in a row. The cause of the slide was market speculation ahead of yesterday's Bank of England rate setting meeting. Investors faith in sterling weakened as the possibility of the central bank taking further measures to loosen monetary policy. However, sterling strengthened against the euro and US dollar yesterday as the statement revealed that the £375 billion asset-purchasing target is to remain constant, as is the 0.5% interest rate. On the topic of forward guidance on interest rates, the central bank said that in next week’s inflation report it would “respond to the Chancellor’s request for its assessment of the use of thresholds and forward guidance” which means next Wednesdays release will be of greater importance than normal. Sterling also benefited from better than expected manufacturing data, which is encouraging given that manufacturing growth has been sluggish since the recession. This morning, data from the construction sector is being released and we may see sterling show further signs of appreciating if the figures seen can replicate those for the manufacturing sector. Call your trader now to see if the sterling slide continues.

Euro

Despite getting off to a quiet start in this week, the euro reached four month high against the sterling. No significant data was released, although consumer confidence across the euro zone was at a 15 month high along with data showing that unemployment rates across the region throughout June had fallen for the first time in two years. Markets were tentative in anticipation of yesterday’s Central Bank's rate decision and statement that followed, the major affecting event of the week. As expected, interest rates were kept on hold, but the comments from the President of the European Central Bank that followed did cause some volatility in the market. Whilst suggesting that the worst was over for the Eurozone, the President did provide forward guidance on interest rates as he stated that rates were “to remain at present or lower levels for an extended period of time” and said that “expectations of rate hikes in money markets are, according to our assessment, unwarranted.” The other significant release yesterday was the manufacturing data which came in above market estimates but did little to effect the relative strength of the euro. Today, Spanish unemployment and Producer Price Index data will be the main points of interest for the Euro. Call your trader now for the latest on the euro.

US dollar

A strong start to the week for the US dollar as better than expected Pending Home Sales data increased speculation that the Federal Reserve would taper bond-buying this Autumn. Whilst the figures did reveal a decline, the decline was not as big as expected after reaching the highest level in over six years in June. On Wednesday, despite better-than-forecast GDP data, the US dollar experienced high levels of volatility across the board and movements in both directions as traders held their collective breath ahead of the evening's statement from the Federal Open Market Committee. Traders had been speculating the statement might reveal further clarity regarding the so called tapering of the Federal Bank’s bond buying program. However, no such details were given and the committee stated that it was “prepared to increase or decrease” its bond buying program where necessary, whilst stating that deflation could hard harm the US economy. Gains were seen yesterday in response to more convincing economic data. Both unemployment and manufacturing data from the US were better than expected which fuelled speculation once again that the central bank could taper its monthly asset purchases at some point this year.  Looking ahead to today, we have the highly influential non-farm payrolls data released. Given the rhetoric from the Federal Bank that tapering would only be considered when the labour market has shown significant improvements, this release is likely to cause volatility in the market. Additionally, a member of the Federal Open Market Committee is speaking in the afternoon and will comment on future policy deliberations. Call your trader now to see how the latest data is received.

Worldwide

Elsewhere, it has been a difficult week for the Australian dollar following comments from the Governor of the Reserve Bank of Australia which eluded towards a rate cut at the next policy-makers' meeting. Following the comments, the Australian currency fell against all of its 16 most-traded peers, and to the weakest level in three years against is US counterpart. Tapered growth forecasts out of China combined with a general softness in the global commodities market has piled further pressure on the export-based economy. After a strong start to the week, logging substantial gains off the back of high oil prices, the Canadian dollar dropped off on Wednesday and Thursday following worse-than-forecast growth figures, and amid speculation the Federal Reserve will taper monetary stimulus. As Canada's biggest trade partner, a tightening of monetary policy in the US would have a marked impact on the Canadian economy. On Tuesday we saw the Indian rupee lose ground against all of its 31 most-traded peers, and hit 10-year lows against sterling. The big shift was in response to the central bank keeping interest rates unchanged and saying that steps taken to tighten cash supply this month will be rolled back. Overnight we saw the release of quarterly inflation data from Australia, but little else is expected to be released today. Get in touch for the latest rates.