Having broken through its year-long resistance level against the euro on Wednesday, the question is whether sterling can hold onto that gain or will slip back. This is a relatively quiet week for data too, so with the next Bank of England interest rate decision not until the very end of the month, rumour and speculation may be in the driving seat for sterling.
However, there are some clear clues now emerging that could determine its direction. We can now be as certain as you like about Andy Burnham becoming prime minister, with speculation becoming feverish as to what he will actually do in office. Tax rises look likely, but it will be his choice of chancellor that will be the biggest clue and potentially poses the biggest risk for sterling exchange rates. The date for that news is likely to be 20 July.
The other important factor in the direction of the economy, and exchange rates, is interest rates. In a busy week for central bankers meeting in Portugal, opinion seemed to be diverging. For the EU and USA, economic data including falling inflation for the former and a worsening jobs market in the latter suggested a disappearing chance of interest rate rises.
For the UK, both the governor and chief economist of the Bank of England appeared to indicate an increasing chance of interest rate hikes.
So, onto this week, where we have a few PMI (Purchasing Managers Index) reports, but the Burnham and continuing Middle East ceasefire look likely to be the more influential factors.
GBP: Boosted sterling looks to Burnham choices
The pound consolidated last week’s gains over the weekend, remaining close to its best for a year against the euro and for two weeks against the US dollar. It’s another quiet week for data, but we will get the Halifax House Price Index tomorrow and a survey of RICS surveyors on Thursday.GBP/USD: the past year
EUR: Lower inflation holds euro back
The latter end of last week saw something of a recovery for the single currency against the US dollar, but the lower-than-expected inflation data meant that in general the euro was in retreat, most notably against sterling. Coming up today, construction PMI. This has been absolutely dire for the eurozone lately.GBP/EUR: the past year
USD: Dollar pegged back
Taken over a month, the performance of the US dollar looks strong, but its gains have been pegged back over the past week across the board, as the US Federal Reserve looks to have no desperate need to raise interest rates and suffer the ire of President Trump, following a very disappointing Non-Farm Payrolls result going into America’s long weekend. Coming up today, services PMI.USD/GBP: the past year
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