UPDATE
The Pound Sterling to Euro (GBP/EUR) exchange rate declined by around -1.0% on Monday morning, whilst the Pound Sterling to US Dollar (GBP/USD) exchange rate was trending within a limited range.
As traders await CBI Trends data, due for publication later on Monday morning, the Pound was generally holding steady versus most of its currency rivals. A slight depreciation can be linked to speculation that the forthcoming domestic data won’t print positively. In addition, traders may be reluctant to invest heavily in the British asset ahead of Tuesday’s Gross Domestic Product data.
The shared currency, meanwhile, strengthened versus the majority of its most traded currency rivals. The appreciation can be linked to positive sentiment ahead of the meeting of the troika of creditors. Traders are hopeful that the creditors will decide to give Greece financial aid ahead of a payment due to the European Central Bank (ECB) on August 20th.
As traders await US Durable Goods Orders data, the US Dollar is trading statically versus its currency rivals. A positive result will pressure the Federal Open Market Committee (FOMC) into hiking the cash rate within the next few policy meetings.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.3989.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending in the region of 1.5504.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast to Strengthen on BoE, ECB Policy Divergence
Over the past week, the Pound Sterling to Euro (GBP/EUR) exchange rate has generally strengthened despite easing tensions in Greece. Although the shared currency rallied versus its major peers after Greece accepted creditor demands in order to unlock vital bailout funds, the gains were short-lived. Friday’s European economic data publications all failed to meet with expectations, which initiated the common currency’s depreciation. Now that Grexit fears have faded, traders will shift focus from geopolitics to monetary policy outlook. Given that the European Central Bank (ECB) cut the official cash rate comparatively recently, and with President Mario Draghi adamant that quantitative easing should last out the full course, policy divergence will weigh on demand for the single currency.
Conversely, the Pound is finding support as traders speculate that a Bank of England (BoE) benchmark interest rate hike is on the horizon. With ecostats providing mostly positive results and BoE officials making hawkish statements, many analysts predict that the British central bank will increase the lending rate broadly in line with the Federal Reserve. This is a big change from the turn of the year which saw traders predicting that the Federal Reserve would hike the cash rate long before the BoE.
Euro (EUR) Exchange Rate Forecast to Weaken as Trader Focus Shifts from Geopolitics to Monetary Policy
In terms of European economic data over the coming week, German and Eurozone labour market and inflation figures will have the most significant impact on Euro movement. Domestic data is likely to have a greater impact on the single currency when compared to previous weeks with the geopolitical situation in Greece improving significantly.
For those invested in the UK asset, Tuesday’s Gross Domestic Product data will have the most influence over Sterling volatility. A positive result from growth data will really boost expectations of a 2015 BoE rate hike. In addition, any hawkish remarks from Monetary Policy Committee (MPC) members will have a very positive impact on the Pound.
Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast to Fluctuate on FOMC Policy Meeting
Unlike the UK and Europe’s divergent policy outlook, the UK and North America are expected to hike the cash rate within close proximity to one another. Therefore, both the Pound and the US Dollar will see significant fluctuations dependent on domestic data results.
In terms of US economic data over the coming week, Wednesday’s Federal Open Market Committee (FOMC) rate decision will have the most significant impact on ‘Greenback’ (USD) movement. Whilst the FOMC are likely to hold the cash rate at 0.25% at this juncture, any accompanying statement may cause heightened US Dollar volatility.
In addition to the FOMC rate decision; Gross Domestic Product, Personal Consumption, Consumer Confidence and Durable Goods Orders will all have a significant impact on the US Dollar.
During Friday’s European session, the Pound Sterling to Euro (GBP/EUR) exchange rate advanced by around 0.4%, whilst the Pound Sterling to US Dollar (GBP/USD) exchange rate declined by around -0.2%.