Monday, 3 March 2014

What could affect exchange rates this week?

Monday 3rd March 2014 
It’s been relatively quiet since my last post, and today hasn’t seen much economic data that has affected exchange rates. We have not seen the Pound make any further gains, and we currently have GBP/EUR rates around the 1.2140 mark, and GBP/USD rates a little above $1.67. 

In today’s post, I will have a look at upcoming events this week that I think will have an impact on rates, including economic data releases and the current instability in Ukraine. 

Instability in Ukraine to affect exchange rates 

There are various things that affect exchange rates. Economic data is the main one, and in a moment I’ll analyse what we have due to be released this week that I think will move FX rates. 

Other things that can affect currency rates are natural disasters like floods and droughts. Political events like elections and new policies. Finally terrorism/instability and acts of war can also have an impact. 

Dominating the headlines at the moment are events in Ukraine. How could this affect exchange rates? Let’s start with the obvious factor – how has it affected the Russian Rouble? I can’t actually trade the rouble, but it’s a good place to start to explain the effects of the current situation. 

Russia's rouble has fallen to a fresh all-time low against both the dollar and the euro after the political turmoil in Ukraine intensified. So the instability there has weakened their currency. 

Further afield, the unstable situation is likely to affect all major currencies. Due to the uncertainty it’s creating, it will likely mean the global investors seek safety. This may mean that perceived riskier currencies can weaken, and safe haven currencies can strengthen. 

Safe haven currencies like the US Dollar and Swiss France therefore could gain strength and become more expensive to buy. Risky currencies like AUD, NZD, ZAR for example could weaken and become cheaper to buy. 

Closer to home, we could see the Pound weaken on the back of the instability, as investors sell it to move to the safety of the US Dollar while geo political negotiations take place. 

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This weeks scheduled economic data releases that could affect rates 

Monday 3rd March 2014 

It’s been relatively quiet today we did have some slightly worse than expected UK data this morning. This afternoon we say some better than expected US data that temporarily caused GBP/USD rates to drop away. 

Tuesday 4th March 2014 

Again a quiet day in terms of data releases. The only UK data of note is construction data released at 09:30am. Most information today is from Australia – an interest rate decision followed by a statement from the RBA. 

Wednesday 5th March 2014 

There is a release of interest from the UK today, an inflation report at 10am that could dictate future interest rate movements and therefore could affect Sterling exchange rates. Elsewhere, the Eurozone has a raft of releases today – Inflation data, Retail Sales and Gross Domestic Product. All of these will give a good idea how the EU economy is preforming and if the numbers are worse than expected we may see the Euro weaken in value. 

Elsewhere, we have an interest rate decision from Canada followed by a statement from the Bank of Canada. In the United States we see the latest mortgage approval numbers and employment figures. 

Thursday 6th March 2014 

It’s the first Thursday in the month, so we will see the Bank of England and European Central Bank announce their decision on interest rates at 12:00pm and 12:45pm respectively. I expect no chance from either; however comments that follow the decision could have an impact on exchange rates. If there are hints of a rate cut in the EU, Pound/Euro rates may rise. If the BoE however hint that a rate change in the UK is a long way off, expect the Pound to fall in value. 

Elsewhere today we have Trade Balance and Retail Sales data from Australia, and Jobless Claims from the United States. All in all a busy day so I do expect some volatility in FX rates today. 

Friday 7th March 2014 

We end the week across the pond – Canada releases unemployment data, and the USA has its latest Trade Balance figures, along with Non-Farm Payrolls at 13:30pm. This is usually quite different to the forecast number, so expect a choppy day for GBP/USD rates today. There is nothing of note from the UK or EU. 

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Alastair Archbold