A positive end to the week saw sterling further its gains against both the euro and US dollar, as a member of the US Federal Reserve’s monetary policy committee spoke out about the dangers of a premature increase in US interest rate.
The week ahead could be an important one for sterling, with a host of data released from the UK, including Purchasing Managers Index (PMI) data from a number of industries.
This will be closely followed on Tuesday by the PMI for the construction industry, which has shown significant expansion over the past year. PMI data for the services sector on Wednesday will be eagerly awaited, with this sector contributing to around 70 percent of UK industry.
Following this we will see the release of the latest interest rate decision from the Bank of England. Following recent comments from BoE Gov. Mark Carney, it is highly unlikely we will see a rate change, resulting in something of a non-event here.
The euro had a mixed day on Friday, as official data earlier showed that French consumer spending rose 0.6 percent last month, significantly beating expectations for a 0.5 percent fall. December’s figure has also been revised up to a 1.6 percent increase. Yet the single currency lost ground again on Friday.
The euro zone data flow is high this week. Just like the UK they will be releasing the Purchasing Managers Indices for all sectors and all countries during the course of the week.
The European Central Bank (ECB) is also holding its monthly meeting. There is expected to be no change in the euro zone interest rate but they will be issuing an updated economic forecast on growth.
Expectations are for a positive upgrade — it should be noted that Germany and Spain recorded greater growth rates than the UK for the final quarter of 2014 — so we may see some support for the euro. It also has to remembered that the ECB have been keen for euro weakness to boost activity and exports and this does seem to be happening.
Friday was a positive day overall for the US, who saw their economy grow by 2.2 percent, making it the fastest growing economy in the developed world. Another welcome development came in the form of positive consumer confidence. However the US dollar was undermined towards the end of the day as a Federal Reserve Member cautioned against US interest rates being increased too quickly.
Another busy week is in store for the US, starting with the Purchasing Manager Indices (PMI) for Manufacturing coming out on Monday, as well as personal income and spending. Federal Reserve Chair Yellen has described these data releases as a possible threshold that she wants to see increase before raising interest rates.
Yellen is actually due to speak mid-week — she may vote for an interest rate hike, with a few Federal Reserve members already suggesting June as the possible month for the start of a rate hike. Non-Manufacturing PMI is out also due, and expected to show continued growth, along with an indicator for employment change.
Thursday will see another indicator for unemployment claims data for the US, leading up to the all-important Non-Farm Employment change data released on Friday.
Federal Reserve member Williams also speaks on Thursday, shining the spotlight on another member predicting when the start of an Interest rate hike may take place.
Friday is likely to be the most volatile day for the US dollar with the non-farm employment change due, which has shown steady positive growth in the employment market. Average Earnings data is also out, a key figure that the Federal Reserve want to keep an eye on, along with the trade balance figures and unemployment rate following from the Employment change release.
The fortunes of the US dollar are moving up and down in these uncertain times. If you are looking to buy or sell US dollars, we suggest contacting your trader now for the latest rates, economic and market news and currency buying strategies.
The Japanese yen had a poor finish to the week, dropping against the US dollar at the end of the week. Official data showed that Japan’s household spending fell 0.3 percent last month, compared to expectations for a 0.4 percent rise. This followed a 0.4 percent increase in December. This was not the only piece of poor news for Japan on Friday, as a separate report showed Japan’s retail sales declined at an annualised rate of 2 percent, much worse than experts’ expectations.
Friday saw the Canadian dollar jump, as demand for its US counterpart dropped, shrugging off data that showed a consumer price fall last month, despite the initial higher expectations.
— Charles Purdy is director of Smart Currency Exchange, London.