Currency market braced for busy week, pound recovering losses

Last week we saw new multi-week lows for the pound and with a lot of influential news to watch out for in the days ahead, more volatility is likely.

What movement have we seen in the currency market?

As markets opened on Monday the pound returned to trading at 1.14 against the euro, having recovered from its recent low of 1.13. The GBP/USD exchange rate advanced 0.4% to hold comfortably above 1.22.
The pound was also in a slightly stronger position against the commodity currencies, with gains of 0.4% being recorded against the Canadian dollar and New Zealand dollar.

So, what happened?

Some of the key highlights from last week were the UK’s Spring Budget, Federal Reserve interest rate hike bets reaching fever pitch and the European Central Bank (ECB) delivering a surprising optimistic policy statement.

Although the Spring Budget caused less of a currency reaction than some had expected, the pound weakened in the build-up and failed to really recover in its aftermath.

Meanwhile, the US and Eurozone news saw the US dollar and euro strengthen, contributing to the pound's run of losses.

Friday’s UK manufacturing data revealed a sharper-than-forecast contraction in January, but there was some positive news from the National Institute of Economic and Social Research. NIESR indicated that the UK economy enjoyed reasonable economic expansion of roughly 0.6% in the three months to February.
Scotland was also making the headlines again over the weekend, with a poll showing that 68% of the Scottish public believe the nation should retain use of the pound if it obtains independence. It’s believed that Scottish National Party (SNP) leader Nicola Sturgeon favours adopting a new currency in the event of a split from the UK.

What should you be looking out for?

Today is pretty light in terms of UK data, although any news about the potential activation date of Article 50 could have the power to inspire pound movement. While it was being speculated last week that Article 50 could be triggered as soon as Tuesday, some believe that Wednesday (or even later) is more likely.
Nothing is confirmed at the moment and the uncertainty could keep demand for the pound a little limited in the short-term.

The pound may also fluctuate ahead of the release of the latest UK employment data – due on Wednesday.
The average earnings figure is the one likely to draw the most attention, with falling wage growth expected to increase concerns that consumer spending will falter in the months ahead. However, rising average earnings could give the pound a boost, as could the UK adding more jobs than forecast in the three months through January.