After trending in a narrow range for much of Monday, both the Pound to Euro (GBP/EUR) and Pound to US Dollar (GBP/USD) exchange rates are likely to experience notable volatility as the week progresses.
Sterling was 0.15% softer against the Euro and little-changed against the US Dollar as European trading continued on Monday.
The Pound began the week on the back foot having softened over the previous five days of trading in response to lacklustre manufacturing, industrial production and construction output reports for the UK.
The GBP to Euro pairing held declines over the weekend despite briefly rallying on Thursday in response to Portuguese banking-inspired concerns.
Early into the local session the Euro was modestly affected by the news that industrial production in the Eurozone shrank by slightly less-than-expected in May.
While data showing that industrial production declined by -1.1% on a month-on-month basis was far from a positive outcome, industry experts had expected a worse monthly dip of -1.2%. April’s MoM figure was negatively revised to a gain of 0.7%.
On the year, industrial production in the currency bloc was up by 0.5%, as economists expected.
The Euro continued trending 0.15% higher against both the Pound and US Dollar after the report was published.
Further Pound to Euro (GBP/EUR) movement could be occasioned today as European Central Bank President Mario Draghi addresses the European Parliament.
Meanwhile, the Pound to US Dollar (GBP/USD) exchange rate was static ahead of a testimony due to be delivered by Federal Reserve Chairwoman Janet Yellen.
If Yellen maintains a dovish attitude during this latest speech, the GBP/USD pairing could test new highs. In the opinion of currency strategist Jim Vrondas; ‘The tone from Yellen will start to change probably in the next quarter but not yet.’
Significant Sterling volatility is also forecast to occur this week in response to two major UK economic reports.
The first, the UK Consumer Price Index, is due out tomorrow.
The second, UK employment figures, are scheduled for publication on Wednesday.
If either or both of these reports significantly add to the case in favour of the Bank of England increasing interest rates, the Pound may post widespread gains.
It has been forecast that the UK’s CPI declined by -0.1% in June month-on-month and came in at 1.6% on the year. Investors will be hoping that it actually moved closer towards the BoE’s 2% target.
Meanwhile, the UK’s employment figures are expected to show that the nation added 243,000 positions in the three months to May, taking the nation’s unemployment rate from 6.6% to 6.5%. However, it will be the wage growth data that excites the most interest.
Another month of poor wage growth could significantly reduce the odds of the BoE hiking borrowing costs and would be Pound-negative.
It is believed that average weekly earnings climbed by just 0.5% in the three months to May, year-on-year – even less of an increase than the annual gain of 0.7% recorded in the three months to April.
Other factors causing volatility in the Pound to US Dollar (GBP/USD) exchange rate include US Advance Retail Sales data, out on Tuesday.
Investors with an interest in the Pound to Euro (GBP/EUR) exchange rate will be focusing on the German ZEW economic sentiment surveys, also scheduled for release on Tuesday.
UPDATED 16:45 GMT 14 July, 2014
Pound Lower Against Peers
The Pound to Euro (GBP/EUR) exchange rate slid by over 0.3% on Monday and the Pound to US Dollar (GBP/USD) exchange rate shed 0.15% in spite of a decided absence of any significant economic reports for the UK.
Bets that Sterling’s recent rally may have been overdone wore on the British currency on Monday, as did a report compiled by Bloomberg showing that only 1/3 of economists are expecting the Bank of England to increase interest rates by the close of this year.
However, if tomorrow’s UK Consumer Price Index comes in at or above forecast levels, both the GBP/EUR and GBP/USD pairings could rally.
Pound (GBP) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,US Dollar,1.7110,
Pound Sterling,,Euro,1.2552,
Pound Sterling,,Australian Dollar,1.8209,
Pound Sterling,,New Zealand Dollar,1.9427,
US Dollar,,Pound Sterling,0.5843,
Euro,,Pound Sterling,0.7964,
Australian Dollar,,Pound Sterling,0.5489,
New Zealand Dollar,,Pound Sterling,0.5147,
[/table]
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