Calm before the storm – currency markets brace for an eventful week

Philip McHugh July 22nd 2019 - 2 minute read

Currency markets were largely quiet on Friday, with investors reluctant to alter their positions ahead what will likely be a chaotic week.

Sterling remains in a narrow range this morning, with GBP/EUR muted at €1.1124, GBP/USD flat at $1.2480 and GBP/CAD subdued at C$1.6293. GBP/AUD and GBP/NZD are both holding steady at AU$1.7737 and NZ$1.8434 respectively.

There’s plenty of drama in store this week, with a new UK PM, a rate decision by the European Central Bank (ECB) and the latest US GDP figures all likely to drive movement.

What’s been happening?

The pound was mostly range bound at the end of last week’s session, with Sterling consolidating Thursday’s gains as a swelling in the UK’s public deficit in June limited any further upside in the currency.

Meanwhile, the euro was left to drift lower on Friday amidst growing concerns over the stability of Italy’s coalition government.

The cracks in the fragile partnership between the League and the Five Star Party appeared to widen at the end of last week as League leader Matteo Salvini openly criticised his coalition partners, stoking speculation Salvini may call for a general election as his party continues to top polls.

Closing out the session was the publication of the latest US consumer sentiment index, with US household confidence showing a slight improvement in July.

However, any gains in the US dollar were ultimately limited after a series of tweets from President Donald Trump in which he again criticised the Federal Reserve’s monetary policy.

What’s coming up?

Expect to see some notable volatility in currency markets this week as markets brace for a series of key events.

For GBP investors the focus this week will be on whether Boris Johnson or Jeremy Hunt enters Number 10 and who they will be appointing to their new cabinet, with the pound likely to weaken if markets fear the new government will push for a harder Brexit.

Meanwhile, movement in the euro this week is likely to be dominated by the European Central Bank’s July policy meeting, with EUR investors hoping the bank will offer up more information on how it may introduce fresh stimulus measures later in the year.

Finally, the US dollar faces some potential headwinds this week with the publication of the latest US GDP figures, with an expected slowdown in US economic growth in the second quarter likely to bolster expectations of an aggressive rate cut from the Fed this month.

Written by
Philip McHugh

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