Last week the US dollar rallied to multi-month highs only to crash in the latter half of the session as US service sector activity slowed.
Looking forward, this week could bring sharp movement in the currency market. An acceleration in US inflation could boost USD while dovish signals from the European Central Bank (ECB) could see the euro crumble.
Pound
The pound trended broadly lower last week as the UK’s final services PMI came in below preliminary estimates, pointing to a sharper-than-expected slowdown in British service sector activity.
Looking at the week ahead, the UK’s latest GDP figures on Friday are the focus for GBP investors. If they show that the UK economy slowed to a near standstill in February, Sterling could end the week on a sour note.
Euro
The euro managed to shake off a cooldown in Eurozone inflation last week and rise higher against many of its peers. The upside came amid an upwardly revised final services PMI and the currency’s negative correlation to a weakening US dollar.
This week, the European Central Bank’s latest interest rate decision is in the spotlight. If the bank signals that it will start loosening policy in June, the euro could slump. A surprise rate cut this week could lead to an even steeper selloff.
US dollar
A stronger manufacturing PMI propelled the US dollar to multi-month highs at the start of last week. However, an unexpected slowdown in American service sector activity then saw USD come crashing down to end the week lower. A hot payrolls report on Friday failed to result in lasting gains.
Coming up, the US consumer price index for March is out on Wednesday. An expected uptick in inflation could see the ‘greenback’ re-test its recent multi-month highs as markets rein in Federal Reserve rate cut bets.
Australian dollar
The Australian dollar marched higher last week, posting most of its gains in the latter part of the session thanks to the selloff in USD and a strong acceleration of growth in the Australian services sector.
Later on this week, the ‘Aussie’ could see mixed movement. With business confidence expected to decline and consumer confidence forecast to rise, AUD could waver.
