Currency market overview: BoE and FED interest rate decisions ahead
Plenty of factors could influence the AUD, GBP, EUR, USD, CAD and ZAR exchange rates this week, such as economic data and the Bank of England (BoE) and Federal Reserve interest rate decisions, say currency experts FC Exchange.
GBP – BoE rate decision ahead
The pound fell against the euro mid-week as Brexit fears translated into a blow for the car industry – manufacturing output shrank along with a fall in domestic demand.
UK gross domestic product (GDP) came in at 0.4% in the third quarter, rather than the 0.3% forecast. On the year, the figure held steady at 1.5%.
In the week ahead, one of the most significant events will be the highly anticipated Bank of England (BoE) interest rate decision. The central bank is widely expected to increase interest rates by 25 basis points in what would be the first move higher in a decade. As last week’s growth numbers came in above forecasts and inflation resides 1.0% above target, it’s thought the bank’s hand will be forced to adjust monetary policy.
UK consumer confidence numbers will be out on Tuesday, followed by house price and manufacturing data on Wednesday. Thursday will be a big day for the pound with the BoE interest rate decision and inflation report reaching markets, followed by services data on Friday. Brexit negotiations could also influence the way the pound trades.
EUR – Dovish Draghi dampens EUR strength
The pound advanced against the euro after the Catalan parliament voted on Friday to declare itself as an independent republic.
European Central Bank (ECB) President Mario Draghi gave a dovish speech about the tapering of quantitative easing creating EUR weakness. The euro fell by as much as 0.8% versus the US dollar.
The Eurozone services purchasing managers’ index (PMI) came in at 54.9 in October, down from the previous month’s 55.8 and lower than the 56.5 expectation. Meanwhile, the manufacturing PMI grew from 58.1 to 58.6, instead of falling to 57.8 as forecast.
In the week ahead there are several high-tier ecostats scheduled for release which could impact the way the euro trades against other currency majors. German inflation figures are out on Monday, followed by Eurozone growth figures and inflation readings on Tuesday. Germany will release labour market data on Thursday, and this will be the last piece of high-tier data to hit the market before the weekend. Additionally, the ongoing political instability in Spain could cause EUR movement, should the situation intensify. Any comments by ECB representatives could also influence the euro exchange rate.
USD – FOMC meeting ahead
Last week the US economy produced some positive figures which offered the buck some stability. The US durable goods orders number came in at 2.2% in September, rather than the 1.0% forecast. Additionally, the US gross domestic product number hit 3.0% in the third quarter on the year, higher than the 2.6% forecast.
The US dollar posted its most significant weekly rise for the year on the back of positive ecostats and the possibility of a more hawkish Fed Chair being appointed.
Last week the White House confirmed that President Donald Trump was prepping to announce the next Federal Reserve Chair this week. Trump took to social media to say that he had a ‘specific person’ in mind to fill the post. If Trump chooses to keep current central bank Chief Janet Yellen in the top spot, the US dollar is forecast for minimal movement. However, appointing someone like John Taylor who’s seen as a hawkish choice for the role, would likely see the US dollar gain. Jerome Powell is also pegged to be in the running for the position, and although he’s seen to be slightly more hawkish than Yellen, USD movement would likely be marginal if he were picked. As there are no specifics as to when Trump may make the announcement, markets could be taken by surprise at any time this week.
In addition, the Federal Open Market Committee (FOMC) is due to meet on Wednesday to discuss monetary policy. Monday will see the US personal consumption expenditures (PCE) figure released, followed by the October consumer confidence stat on Tuesday. Wednesday will see the ADP employment change figure make its way onto the market, as well as the ISM manufacturing and ISM employment numbers. Friday will finish the week with the highly influential change in non-farm payrolls and unemployment rate readings.
ZAR – Rand hits 10-month low
The South African rand took a tumble to a 10-month low last week after Finance Minister Malusi Gigaba announced softer growth expectations as government debt rises. The budget speech saw the rand drop as Gigaba stated that the budget deficit was forecast to reach 4.3% of GDP in the 2017/2018 fiscal year in what will be the highest level since 2009.
CAD – CAD/USD reaches three-month low
The Canadian dollar dropped to a three-month low versus the US dollar (CAD/USD) last week after the Bank of Canada (BoC) chose to keep interest rates on hold. The central bank iterated that although growth in the second quarter had been healthy, the final half of the year may see expansion taper.
The central bank stated: ‘Exports and business investment are both expected to continue to make a solid contribution to GDP growth. However, projected export growth is slightly slower than before, in part because of a stronger Canadian Dollar than assumed in July.’
Meanwhile, oil prices hit a two-year high; any climb in oil values can positively influence the loonie and so investors will be carefully watching the cost of black gold.
AUD – When will the RBA hike rates?
Last week the Australian dollar suffered losses on the back of weaker-than-forecast inflation figures which increased speculation as to when the Reserve Bank of Australia (RBA) might be inclined to raise interest rates.
The Australian Bureau of Statistics (ABS) recorded headline inflation reaching 0.6% in the September quarter, allowing the annual figure to come in at 1.8%.
ABS Chief Economist Bruce Hockman commented: ‘Utilities prices rose strongly in the September quarter 2017. The most significant rises relate to electricity and gas prices, with increases in wholesale prices being passed on to consumers. Increases in wholesale prices have been observed across the National Electricity Market (NEM), with the most significant rises this quarter in electricity being observed in Adelaide, Sydney, Canberra and Perth.’
This week will see Australian home sales and manufacturing data out on Tuesday, followed by services, trade balance, and building approvals ecostats out on Thursday.