Tomorrows unemployment figures and Bank of England Inflation report likely to set the tone for the pound this week (Mike Vaughan)

Sterling has been running through a particularly volatile time of late posting strong gains against the single currency since the surprise interest rate cut of last week and pushing rates to a 10 month high. Although the Euro has recovered over 1 cent since the highs of Thursday last week, the levels are still some 2.2% better than the end of October. Worryingly each time the pound looks like it will have a sustained period of strength and breach the 1.20 level the Euro fights back, should this trend continue then the current prices must represent value.

Looking at GBP/USD – rates have fallen below 1.60 following positive non-farm payroll figures last week, possibly a short term opportunity for USD sellers. This improvement in unemployment data has also led to a shift in GBP/AUD and GBP/NZD. Since the end of October the pound has gained in excess of 2% against the Aussie and 1.5% against the Kiwi.

GBP/EUR

As mentioned the pound has had a better time of late against the single currency and with a host of data due for release today and tomorrow, should the recent set of positive date continue then the pound could again be set for a positive week. This morning we have UK inflation figures at 09:30 but more importantly in my view will be tomorrows unemployment figures at 09:30 and the Bank of England’s inflation report and Mark Carney’s speech at 10:30. Unemployment is expected to stay at 7.7% but should we see an improvement then I would expect strong support for the pound as it moves levels one step closer to Mark Carney’s target of 7% before he may consider raising interest rates.

Following this the Bank of England will release a report of the detailed economic analysis and inflation projections on which the Bank’s Monetary Policy Committee bases its interest rate decisions. This should give clues as to future monetary policy and clues may also be given during Mark Carney’s speech as to the general direction the UK economy is heading. Positive sentiment and again I would expect the pound to have a strong day.

GBP/USD

Following last Friday’s non-farm payroll figures the dollar has strengthened from 1.6085 to 1.5945 – for me an opportunity for USD sellers. Longer term I cannot see significant USD strength until the FED gives more concrete clues as to when they may begin to taper QE and your guess is as good as mine as to when this might be. Again should tomorrows unemployment and inflation report be positive I would expect cable to push back through 1.60.

Looking at other data from the US to keep an eye on this week watch out for the US monthly budget statement at 19:00 tomorrow, a speech overnight Wednesday by Ben Bernanke, initial jobless claims figures Thursday at 13:30, and industrial production figures scheduled for 14:15 on Friday.

GBP/AUD

As previously mentioned the current topsy turvy trend for GBP/AUD is continuing. At the beginning of October the market was looking set for a push to 1.75 and beyond reaching a high of 1.74, however within a three week period levels had fallen back to 1.67, a fall of over 4%. We are currently seeing a recovery from the pounds point of view with levels recovering from 1.677 last week to over 1.71 at the time of writing. For me I still feel there is more value for Aussie buyers and would look again for the pound to push on from current levels. However October’s trends are a timely reminder of how quickly the market can shift and how opportunities can be missed.

To discuss the currency service we provide and the multiple contracts we can offer to help maximise your exchange then please contact the office on 01494 787478 or email Mike at [email protected]