Exchange Rate Forecast

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The week ahead for GBP/AUD exchange rates

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Last week Sterling managed some small gains against the Australian Dollar, which, given the prospect for GBP/AUD volatility this week, could be a short-term opportunity for those buying Australian Dollars with Pounds.

US Dollar issues helping AUD

The Australian economy has been performing well recently, this has been reflected in a series of positive economic data releases. With the US Dollar impacted by the recent hurricanes in the US and the potential for conflict with North Korea, the Australian Dollar has become more attractive to investors due to its strong performance and good interest rates.

Data releases that could affect GBP/AUD this week

Tomorrow morning we are expecting UK inflation data for August. If the expected 2.8% is not the result we could see some volatility on the GBP/AUD rate. Wednesday also has some important economic data, we will see the release of Westpac Consumer Confidence data at 01:30am (BST). This is followed later at 09:30am by UK unemployment figures and average earning figures. Recently inflation has been above average earnings for the UK which has a negative impact on the cost of living.

Thursday is lining up as a big day for the GBP/AUD exchange rate. First we have a speech from Guy Debelle, Deputy Governor of the Reserve Bank of Australia. This is followed shortly after by employment figures for August which could impact AUD. With the amount of positive Australian data being released it is widely expected that the AUD could strengthen following this.

UK interest rate decision

We then have the main event for Sterling, the Bank of England’s interest rate decision. There is no change in the base rate expected, the focus will most likely be on the way the Monetary Policy Committee (MPC) vote as any indication for a potential interest rate hike in the near future could cause a reaction from Sterling.

All in all I believe the struggles will continue for Sterling against the Australian Dollar this week.

UK Public Finances Today’s Main Focus

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Sterling has started off on the back-foot this morning and unfortunately for those planning on converting Pounds into another currency in the short term future, today’s prices are more expensive than yesterday.

The reason for the fall in the Pound’s value is likely due to investors being cautious in the lead up to what was today’s main news release out of the UK. The data for the July figure of UK public sector borrowing was released at 9:30am this morning with analysts generally expecting to see an improvement on the previous month’s figure which came out higher than expected. Analysts were not disappointed as the figure released was better than expected at £-0.760B.

Interestingly the Pound to Euro rate hit a new 8-month low of 1.0903 this morning. Investors will be keeping a close eye on this key psychological level as they did with the 1.10 mark. If the current 1.09 support breaks I think there is a chance we could see the Pound sold off quite drastically, especially now that a number of key institutions have outlined forecasts of parity between the pair during 2018.

Later this week on Thursday the Pound could also find itself fluctuating as UK GDP figures for the month of July will be released. The year-on-year expectation is for a figure of 1.7% so expect any deviations from this figure to result in movement for Sterling exchange rates.

Those following the Pound’s value at the moment should be aware that Morgan Stanley, Citi and HSBC have all predicted parity for GBP/EUR next year, and with cable (GBP/USD) trading not far from a 30 year low the situation for the Pound is not great although the rates have been lower than their current levels.

What next for Pound Sterling exchange rates?

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Following the EU Referendum and the UK’s decision to leave to EU the Pound has fallen to record lows against most major currencies. But does Sterling have further to drop? Will the recent predictions of parity with the Euro come true?

While Brexit is likely to continue to weigh on the value of the Pound recent UK data hasn’t all been bad. We saw strong employment figures this week, with unemployment dropping to 4.5% which is its lowest level since the mid-seventies. We have also seen positive retail sales and slightly improved average earnings numbers, although inflation is currently outperforming average earnings which is a worry for the cost of living in the UK.

With interest rates so low there is certainly potential for a rise in Sterling’s value, should the Bank of England choose to raise rates. However, they are not currently keen to do this as it would add to the rising cost of living at a time when household debt is also starting to appear in the headlines.

Brexit ‘positioning’ documents

This week saw the release of the first of a series of 12 ‘positioning’ documents that aim to outline the UK Government’s plan for Brexit, with more to follow in the coming weeks. Although these haven’t impacted Sterling value massively, if they are well-received the sentiment towards the Brexit negotiations could become more positive. If nothing else, they will bring more certainty to the plans for Brexit, which can be seen as positive.

Pound to Euro outlook

Sterling weakness is not the only reason that the GBP/EUR exchange rate is sat around 1.10, data from the Eurozone has largely been positive which has in turn strengthened the Euro.

There is definitely a case to say there may be further Euro strength on the horizon, however yesterday commentary from the European Central Bank (ECB) suggested that they would not be pleased with a very strong Euro. Personally I feel the Pound is undervalued due to the uncertainty that surrounds it, so given a bit of time I believe the GBP/EUR rate will recover back into the later teens providing it finds support around the 1.10 mark as it currently is.

Pound to US Dollar Outlook

Following the US raising the interest rate the US Dollar was performing well and the positive outlook suggested further rate hikes looked to be on the cards in 2017. However, the GBP/USD rate is now sat at 1.28, having risen from lows of 1.20 earlier in the year. This is largely due to declining confidence in the Trump administration, as well as potential conflict with North Korea. I believe the GBP/USD rate could fall again in the coming weeks providing the latest furore surrounding Donald Trump blows over.

Where next for GBP/AUD exchange rates?

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Following the Reserve Bank of Australia’s Governor Philip Lowe’s ‘dovish’ suggestion that Australian interest rates would ‘remain steady’ at 1.5% for the time-being, the Australian Dollar has weakened slightly – with the GBP/AUD rate sat at 1.6520 at the time of writing. However, the general tone from the RBA has definitely been for a positive move for interest rates rather than the negative, although they do see this as a long term move, with Philip Lowe saying in his statement to a parliamentary panel on Friday:

“Current market pricing implies greater probability of a rate rise than a rate reduction, it also implies that the next move in interest rates is a long way out”

Interest rate movement is a key driver for exchange rates and his comments when teamed with other events, such as the North Korean situation have seen the Australian Dollar weaken slightly.

This is generally the case with the AUD, where it rises or falls in line with global sentiment to risk. The Australian Dollar is currently attractive to investors because of it’s higher yield, but with potential conflict in the headlines investors seem to be moving to ‘safe-haven’ currencies to mitigate risk. Any more news on the situation between the United States and North Korean is likely to affect the AUD further.

With the RBA forecasting economic growth at 3% and being especially keen not to allow household debt to rise too sharply many analysts do not expect them to raise interest rates during 2017. With many looking to the unemployment rate as a key indicator of the likelihood of a hike.

Looking at the week ahead for the GBP/AUD rate, Sterling will probably continue to struggle as Brexit reality start to hit the UK economy, and with unemployment data for Australia due on Thursday, there could be some volatility. Generally, I expect the GBP/AUD rate to drift slightly higher.

Data releases that could move GBP/AUD next week

Next week we have some key UK data in the form of Consumer Price Index (Inflation) on Tuesday, Unemployment figures for June (Wednesday) and UK Retail Sales (Thursday). Australia’s Unemployment data also due on Thursday could be the key release for AUD next week.

Data releases that could impact Euro exchange rates this week

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This week the major data releases that could impact Euro exchange rates will be country specific as opposed to covering the Eurozone as a whole.

Tomorrow morning in the early hours there will data releases covering import and export data as well as trade balance data for both Germany and France. Although the figures are released prior to the opening of European equity markets I think they could have an impact as Germany and France are the 2 major economies operating within the trading-bloc and any dramatic changes to what’s expected could result in swings for EUR exchange rates.

EUR/GBP could be impacted by the UK Inflation Report

The most important data due out on Wednesday is likely to be the UK’s Inflation Report Hearing for June, as any indications into future monetary policy from the Bank of England would likely result in Sterling strength, especially after such a large gain for EUR/GBP in recent months.

The situation is similar on Thursday as the UK will once again have the bulk of news releases due for release. With a popular think tank (NIESR) outlining their GDP estimate for July at 1:00pm along with Industrial and Manufacturing data scheduled for 9:30am, it could be a busy day for the EUR/GBP pair once again.

On Friday the focus is back with Europe as Spain, Italy, Germany and France will all release inflation data at different times. There needs to be a big swing from expectations to see the Euro impacted as a whole, but after such a bullish run for the Euro recently I think investors will be wary of the possibility of a batch of profit taking from day traders.

Aside from these news releases the ongoing discussions and ‘Brexit Bill’ headlines could also impact Euro exchange rates.

Will ‘Super Thursday’ cause Sterling exchange rates to swing later this week?

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Our regular readers will be aware of the busy week for Sterling exchange rates up ahead, with the data beginning tomorrow morning.

Although there are data releases each day at 9.30 am the general consensus is that this Thursday will be the busiest, with many financial commentators referring to Thursday as ‘Super Thursday’.

The reason for the build-up and expectations is the high volume of data due out that day, with the Bank of England’s Minutes speech likely to be the key potential market mover.

There is no expectation of a rate hike after inflation pressures appear to have subsided recently, but investors and those concerned with the value of the Pound will look to the speeches for indications of whether there will be future monetary policy changes.

With the governor of the BoE, Mark Carney speaking shortly after the interest rate decision there are many opportunities for Sterling movement, and I think that any talk of there being no need for a rate hike for a long period of time will result in a fall for the Pounds value.

After such a large drop recently, particularly against the Euro I wouldn’t be surprised to see the BoE talk up the UK economy after the currency has come under increasing pressure recently, especially after some poor data releases recently.

Aside from Thursday’s data releases at lunchtime there will be data releases at 9.30am tomorrow, on Wednesday and on Thursday morning. These releases will cover sentiment within the Manufacturing, Industrial and Services sectors so expect any major deviations from the expected figures to result in movement for Sterling exchange rates.

The week ahead for Sterling exchange rates

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With the Pound trading towards the bottom end of its current trends against most major currency pairs, many will of course be looking out for reasons for the Pound to climb in order to purchase their foreign currency at higher rates.

With Brexit talks between the UK and the rest of the world ongoing there is always the chance of a sudden update which could swing the exchange rates, otherwise I’ve details some of the major potential movers coming out next week.

At 9.30am on Monday morning there is a raft of data out of the UK, with many of the indicators giving us a general overview of how the UK economy is currently performing. I think that the Consumer Credit for June figures along with Mortgage Approvals (also for the month of June) could result in movement for the Pound, especially if the mortgage figure comes out below the expected 65,000 new mortgage approvals.

Also on Monday there will be an Inflation Report Hearing whereby we will get an idea of how the Bank of England is to deal with the increasing inflation levels in the UK.

On Tuesday morning also at 9.30am we’ll get an idea of how the Manufacturing sector is getting on, as Market Manufacturing PMI (June) will be released which will demonstrate market sentiment within the sector.

We will have the same release the following day although on that occasion the figure will cover the Construction sector, and then on Thursday we’ll see the figure for Services which is essentially the most important of the three as that sector covers the most aspects of the UK economy.

Thursday is the most important day, not only due to the Services data to be released but because there will also be a release of the Bank of England’s most recent interest rate decision and subsequent Minutes report. The financial markets will be paying close attention to this event as any indication of future monetary policy are likely to result in movement for Sterling exchange rates. This data starts at 11am and Mark Carney will be speaking from 11.30am onwards.

Sterling gains on EU migration comments, will the Pound to Euro rate find support at 1.12?

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The financial headlines are mixed regarding the Pound at the moment, as Sterling is trading quite close to an 8-month low against the Euro whilst simultaneously hitting a 10-month high against the US Dollar.

The main news out of the UK today is likely to be the comments from Home Secretary Amber Rudd, after she said that she wants to ‘reassure businesses and EU nationals that we will ensure there is no ‘cliff edge’ once we leave the bloc.

The markets were buoyed off the back of these comments in what’s a light day for economic data, and the Pound has seen a boost against almost all major currency pairs.

With yesterday’s economic update on UK economic output delivering no surprises, the Pound to Euro exchange rate appears lodged around 1.12 at the moment at the inter-bank level. Hopes of an interest rate hike from the Bank of England appear to have all but faded now and I think this is reflected within the pounds value.

GBP strength or just USD weakness?

Whilst Sterling is benefiting from US Dollar weakness the Pound is finding itself trading towards the bottom of its post-Brexit trends against almost all other currency pairs, which gives us an insight into how the currency is performing in general.

There are no major economic updates out of the UK tomorrow, so those wanting to take advantage of any spikes within the exchange rate off the back of news releases will need to monitor the economic calendar in other areas of the world.

My personal opinion is that the on-going Brexit discussions will be a key factor for the pound moving forward, and there could be an unexpected update that swings rates but of course, it’s impossible to tell when this will occur.

Has the Pound been oversold against the Euro?

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The Pound has been coming under pressure against most currency pairs recently, but the drop against the Euro appears to be one of the stand-out price fluctuations in my opinion.

On Friday the pair plunged as low as 1.1125 at one stage, with tabloid media jumping onto the headline tourist exchange rates as new spread that £1 was buying €0.88 cents as some airport bureau-de-change.

The Pound to Euro exchange rate has moved from the top end of its current trend all the way down to an 8-month low over the past couple of months and there are a number of reasons for this.

Firstly confidence in the UK moving forward has waned as Brexit negotiations are unlikely to be as smooth as they would have been had Theresa May won the snap election she called earlier this year. At the same time economic data coming out of the UK has begun to disappoint, and the likelihood of an interest rate hike from the Bank of England has dropped, especially after the shock drop in UK inflation levels which we found out just last week.

This turn in sentiment for the UK has come at a time of positivity for the Eurozone and therefore the Euro. Earlier this year there were fears surrounding the increasing popularity of the populist parties within Europe, and the Euro weakened as a result. But now those fears seem to have waned, especially after Emmanuel Macron won the French Presidency a while ago, and with Angela Merkel currently expected to win the German election later this year.

What issues could cause the Euro to drop in future?

Those converting Euros into Pounds are in a good position in terms of recent history, and I think anyone with a future requirement should be aware of the potential downsides to the Euro’s value in future.

The Greek debt crisis could always resurface, and I think the wave of populism within Europe isn’t over, especially in Italy as they face many of the issues of the migrant crisis. There is also the issue of Catalonian Independence and if that issue arises once again it’s worth noting that the region is responsible for 20% of the country’s GDP.

Euro stumbling into tomorrow’s ECB press conference

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UK inflation hit Sterling value

With the second round of Brexit negotiations starting in Brussels yesterday, it was UK inflation that hit Sterling’s value. The EUR/GBP rate surged yesterday following lower than expected UK inflation data, before dropping slightly back towards the end of the day.

The Euro has dropped against the Pound throughout today, with the EUR/GBP rate sat at 0.8835 at the time of writing.

Movement for the Euro today was hampered by the fact that investors are awaiting tomorrow’s European Central Bank (ECB) interest rate decision at 12:45pm and the monetary policy statement and press conference following at 1:30pm.

Analysts await Draghi’s tone

Analysts are not expecting the ECB to announce any change in the interest rate, so the press conference could be the more likely event to cause any shift in the EUR/GBP rate. Investors will be more interested in ECB President, Mario Draghi’s sentiment concerning monetary policy, a hawkish tone could benefit those selling Euros.

Following last month’s ECB Conference in Portugal the Euro benefitted from Mr Draghi’s more hawkish tone, although these gains were quickly reversed when it appeared that his comments were misunderstood by the markets.

If Mr Draghi indicates that the ECB are looking to loosen monetary policy and wind down their Quantitative Easing policy we could see a sharp move upwards in the Euro’s value.

At 3:00pm tomorrow there is another data release in the form of Consumer Confidence for July, with the data expected to slow a slight downturn to 1.1 from 1.3. This is by no means expected to be the main event for the day, with the ECB press conference likely to steal the limelight.

UK Retail Sales data tomorrow

With potential for the Euro to put pressure on Sterling, month-on-month and year-on-year Retail Sales data for the UK could offer some good news the Pound, with both expected to be positive.

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