Raphael Sonabend, FX Analyst
Last week saw strong gains and losses made throughout the week across the FX markets. The dollar regained its position as an unstoppable force and the euro’s weakness also saw no end. With Putin still missing, oil still falling and Greece and Germany still in a standoff, volatility in the markets is likely to continue as geopolitical tension increases. The current victors of this uncertainty are a strengthening US dollar and the German economy, which is benefitting from increasing exports due to a weakening euro. As the dollar continues to strengthen, there has been speculation that Wednesday’s Fed statement will be particularly dovish as a strong dollar is negatively impacting on exports. Today’s focus will be on Draghi’s speech at 18:45, in which he is due to talk on “the future of the finance industry – between growth and regulation”, opportunities for hawkish sentiment will be present as always.
GBP/EUR: Currently trading at 1.4029
- Strong Sterling gains last week were met with resistance on Thursday and euro strength was consolidated the day after. The weekend saw euro weakness in the Asian markets but limitations have still been seen on the pound as trading continues around the 1.40 mark.
- A quiet day lies ahead with focus on Draghi speaking tonight in Frankfurt on “the future of the finance industry”. Opportunities for hawkish sentiment will be ever-present and euro traders will be keenly analysing his every word.
GBP/USD: Currently trading at 1.4778
- Further lower-than-expected results out of the US failed to halt dollar gains as the rate briefly pushed below the 1.47 mark last Friday. Slight gains have since been made by the pound. US monthly PPI fell to -0.5% whilst a rise to 0.2% was predicted, preliminary UoM consumer sentiment also saw a considerable fall from 95.4 to 91.2. These two surveys are often linked in trends and a decrease in both is not altogether surprising. The decrease in sentiment was due to pessimism surrounding a particularly cold winter and therefore rising heating costs.
- A quiet day from both countries could see the pound recover more ground on the back of poor US data last Friday. The US utilisation figures this afternoon are unlikely to see much impact, especially with only a limited change predicted.
EUR/USD: Currently trading at 1.0528
- The euro continued to weaken last Friday, despite US figures coming in below expectations. This weakness was extended in the Asian markets however today has seen a slight correction back towards 1.055.
- Today’s trading will likely focus around Draghi’s speech this evening. Traders will be studying his every word for signs of hawkishness but one eye will also remain on reports and speculation ahead of Wednesday’s Fed meeting.
GBP/AUD: Currently trading at 1.9364
- The latter part of last week provided significant support for the Aussie as we saw the rate plummet over 5 cent since the sterling gains were halted on Wednesday morning.
- With geopolitical tension continuing to rise, higher-yielding currencies will be subject to further volatility this week. Focus will be on tomorrow morning’s RBA monetary policy meeting minutes and traders will be looking for any insight as to whether the normally conservative RBA will soon cut rates again.
GBP/NZD: Currently trading at 2.0088
- Since the RBNZ held the cash rate last Wednesday, the Kiwi’s gains have been seemingly unstoppable, pushing the rate below the 2.01 level and continuing to gain. This morning has seen the rate level out slightly but this is too early to call an end to NZ dollar gains.
- A quiet day today may allow Kiwi gains to push on but a recent strengthening in the pound and strong UK figures predicted throughout the week, could signify the start of a Sterling correction.
GBP/CAD: Currently trading at 1.8900
- The Loonie’s gains were halted on Friday when data released showed the economy lost jobs in February and the jobless rate rose to 6.8 per cent, from 6.6 per cent in January. Currency strategists believe this to be the knock on effect of lower oil prices.
- Today brings news of Canada’s foreign securities purchases, which forecasters are predicting will show a drop in demand. This news could give Sterling a lift as we begin the week.
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