Weekly currency forecast: ECB policy decision to drive volatility?

The currency market was volatile last week, with GBP, EUR and USD fluctuating throughout the session, and the Australian dollar coming out on top.

Looking at the week ahead, the European Central Bank’s (ECB) interest rate decision takes centre stage. Markets expect a rate cut from the bank, but could the ECB’s forward guidance lend the euro support?

Pound

A lack of any market-moving UK data left the pound exposed to market volatility last week. Sterling wavered throughout the session, ending the week mostly unchanged against many of its peers.

British data remains scarce this week, which may lead to more mixed trade. The only notable release is the final services PMI for May, due on Wednesday. Could a revised result prompt some clearer movement in the pound?

Euro

The euro also saw choppy trade last week, as positive Eurozone data competed with European Central Bank interest rate cut expectations to pull EUR in different directions. However, hotter-than-forecast Eurozone inflation helped the euro recoup some losses at the end of the week.

This week, the spotlight falls on the ECB’s policy decision on Thursday. As a rate cut is almost fully priced in, the focus will be on the bank’s forward guidance. Any signs that the bank is hesitant to pursue further rate cuts could support the euro.

US dollar

The US dollar fluctuated last week. Positive US data and hawkish Federal Reserve comments helped USD rally after an initial fall, before slower GDP growth and softer inflation figures saw the ‘greenback’ relinquish its gains.

The session ahead brings some high-impact US data, which could drive volatility in the US dollar. Mixed results from the latest ISM PMIs could see USD waver through the first half of the session, while a weaker non-farms payrolls report on Friday may dent the ‘greenback’.

Australian dollar

The Australian dollar initially wavered lower last week, despite stronger-than-forecast inflation data, due to a souring market mood. However, the ‘Aussie’ rallied at the end of the session as risk appetite improved.

Looking ahead, Australia’s GDP growth rate for the first quarter is in focus this week. Could another 0.2% expansion in the country’s economy be enough to boost AUD exchange rates?