After a packed week that saw key data, interest rate announcements and big swings in exchange rates, it’s safe to say the weekend was a welcome sight for currency markets. Sterling continued to trade well against the euro, but the US dollar was the big gainer of the week, advancing by 0.6% against the pound and around 0.7% against the euro.
It was all going so well for the pound. At least, that was until scorching US labour data arrived on Friday afternoon, which will no doubt have sent a few City traders scampering back to their desks mid-beverage.
The American economy added 353,000 new jobs in January – well above December’s read and almost double the level experts had predicted. That, along with the Federal Reserve’s comments last week, has led to a rethink on when interest rates will be slashed. If you listen to money markets (we don’t advise doing that often), the possibility of cuts at the May meeting has decreased markedly.
The Bank of England also opted to hold at its meeting, although policymakers voted in a rare three-way split between holding, raising and cutting. It’s unclear whether Andrew Bailey has been projecting the TV show Traitors in the committee room, but it’s clear there is a certain discord among policymakers as to what the next move is.
Meanwhile, the European Central Bank signalled it was more inclined to cut rates than before due to cooling inflation figures.
Why is that important for currency markets? Well, we’ve seen a long battle as buyers try to figure out who will be the first central bank to move. Currencies tend to do well with interest rates higher, so any small shift in expectations can cause big fluctuations in markets. Thank goodness for small mercies, because we won’t have to deal with the circus that is “decision week” this time around.
Here’s what to look out for this week…
All things told it’s a much quieter week, but German balance of trade numbers and final HCOB reads for Europe kick Monday off with a bang. The afternoon session also features the US ISM services PMI (purchasing managers index).
Tuesday is quiet aside from European retail sales, but Wednesday brings UK house price data in the form of the Halifax index.
More US jobs data follows on Thursday before Germany takes centre stage on Friday with January’s inflation reads.
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