A -2.6% monthly GDP contraction weighed heavily on the pound as worries over the UK’s economic outlook picked up again.
Sterling opens this week on the back foot, with GBP/EUR slipping to €1.1093, GBP/USD dipping to $1.2236 and GBP/CAD slumping to C$1.6110. GBP/AUD and GBP/NZD have fallen back to AU$1.7847 and NZ$1.9059 respectively.
In the spotlight this week we have the European Central Bank’s (ECB) latest rate decision. How will the bank’s stimulus plans impact the euro?
What’s been happening?
After soaring through much of the week, the pound finally ran out of steam on Friday due to an absence of fresh political headlines.
This left Sterling vulnerable to profit taking, with a number of investors seeking to limit their exposure to the political uncertainty likely to be caused by the snap election that now looks all but inevitable.
The euro also struggled to find momentum at the end of last week’s session, with German industrial production contracting for the second month running in July and increasing the risks of the country slipping into recession.
Meanwhile the US dollar remained in the doldrums on Friday, after US payrolls printed below expectations in August, fuelling concerns over the health of the US economy.
Also weighing on USD exchange rates last week was a speech by Federal Reserve Chair Jerome Powell, who hinted more rates cuts may be coming.
What’s coming up?
The week ahead looks almost certain to be dominated by the European Central Bank’s rate decision on Thursday.
After dropping several hints that it will announce a ‘substantial’ stimulus package this month, EUR investors will be eager to learn what this may contain.
As a result we expect the euro to encounter volatility throughout the week, with EUR potentially facing significant selling pressure if the ECB is particularly aggressive with monetary easing.
UK politics could continue driving movement in the pound today as parliament holds a second vote on whether to call a general election. The UK’s monthly GDP release could also influence Sterling this morning.
Finally, the latest US CPI figures are likely to act as the main catalyst for the US dollar this week. A disappointing inflation reading could result in the USD selling bias persisting into a new week.
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)