Monday, 5 September 2016

Pound remains supported by robust economic data

Good morning. Sterling is still holding firm, and is currently sitting at a 1 month high vs the Euro, and nearly a 2 month high vs the US Dollar. As outlined in recent posts, it's mainly due to some surprisingly good economic data from the UK.  (Click here for live currency charts)

This continued this morning with the release of figures showing the UK's services industry showing the biggest one month gain since the survey started 20 years ago. This follows last weeks construction and manufacturing figures, and paints a pretty good picture of Britain's economy and shows things for the moment look pretty good. These figures show it's very unlikely that the UK will enter a recession, and also makes it unlikely the Bank of England will opt to cut interest rates again at their next meeting.

Could the Pound go higher still?


Sterling has now risen pretty consistently for the last few weeks, but the rally now seems to have run out of steam somewhat. The Pound was weak on expectations that 'Brexit' would mean the BoE having to stimulate the economy, but as this is now unlikely in the near term, the Pound has recovered and now seems to have found its feet at the current levels.

Rewind to this time last month, and we saw similar rates of exchange, but within a few weeks we saw GBP/EUR drop 5 cents to €1.15. We're currently at the best GBP/EUR rates in a month, but bear in mind that it would only take a couple of economic data releases that cast doubt on the strength of the UK economy to  drag rates back to the levels of €1.15 we were at a few weeks ago. I think that the level of €1.20 that we're pretty close to at the moment, is a level the Pound will struggle to break through, given it's a key resistance level. Let's look at what is happening this week that could move exchange rates....

What could move exchange rates this week?


There are some further key releases from the UK this week, including a measure of Retail Sales this evening. Wednesday will be the most important day this week for Sterling, as we have the latest industrial and manufacturing production figures for the UK, in addition to the BoE Inflation report, and a GDP estimate. Lots here for the market to digest, and if any of these releases come in below forecast, expect Sterling to weaken and fall back away against other currencies.

GBP/EUR may also be affected by Thursday's EU decision on interest rates and monetary easy. If they hint at rate cuts or stimulus, then the Euro may weaken a little and become cheaper to buy, however the UK data on Wednesday will affect the market before the EU announcement.

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