On Friday the Pound has softened against the majority of its most traded currency competitors after a combination of disappointing construction output and a huge decline in global oil prices.
The Pound Sterling to US Dollar exchange rate was trending in the region of 1.6031 on Friday ebbing between a high of 1.6220 and 1.5945.
The Pound Sterling to Euro exchange rate was trending in the region of 1.2698 fluctuating between a high of 1.2770 and a low of 1.2665.
Friday’s mixed set of British data wasn’t enough to overshadow the declination caused by global oil prices tumbling to a near 4-year low.
Total Trade Balance was forecast to increase from -£3079 to -£3000, but the actual result advanced to -£1917. Trade Balance Non EU was predicted to rise from -£4755 to -£4000, but the actual data showed a jump to -£3587. Visible Trade Balance also eclipsed the market consensus of an increase from -£10414 to -£9600 with the actual data reaching -£9099.
British Construction, however, declined beyond the median market forecast. Yearly seasonally adjusted Construction Output was forecast to drop from 4.3% to 2.9%, but the actual result revealed output to have contracted by -0.3%. On a monthly basis Augusts Construction Output contracted by -3.9% despite the market consensus of a 0.5% growth.
With global oil prices crashing to unforeseen lows the British oil exports will be under strain. Traders have priced this in which has caused the Pound to soften against its major peers.
‘The timing of Iran’s price cuts makes the price war more and more probable,’ Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said by phone yesterday. ‘Iran is fully aware of the direction of and the mood in the market. Given that we’ve seen consecutive cuts, this would seem to be some kind of action and reaction.’
‘We look to be in a capitulation phase in the oil market where investors are acquiescing to the reality of the supply overhang,’ Ric Spooner, a chief strategist at CMC Markets in Sydney, said by phone today. ‘The trigger was the news that Saudi Arabia was cutting prices. We’re certainly into the region where OPEC may consider acting.’
Forecast for the Pound Exchange Rate
Monday October 13th
With an incredibly sparse economic calendar on Monday market volatility is likely to be minimal. The British Lloyds Employment Confidence is the only UK domestic data publication and doesn’t hold a lot of weighting in terms of the provocation of wider market movement.
Traders will likely be paying attention to geopolitical developments and changes in the commodities market to dictate investment.
Tuesday October 14th
Tuesday’s economic data pertaining to Britain will be of particular importance. The Consumer Price Index measures the change in prices for retail goods and services, including food and gas. The CPI is the key measure of inflation for the UK and is used by the Bank of England in making interest rate decisions.
Given that the Bank of England have targeted inflation as the key hurdle preventing monetary policy normalisation the data will be very closely scrutinised by investors. The yearly Consumer Price Index is forecast to decline from 1.5% to 1.4%.
German and Eurozone data on Tuesday may also have an effect on Sterling movement.
Wednesday October 15th
Wednesday will also be an influential day in terms of the provocation of Sterling volatility. Labour market data is of importance to see whether there is a better correlation between wages and inflation.
The Claimant Count Rate, Jobless Claims Change, Average Weekly Earnings, Weekly Earnings ex Bonus, Unemployment Rate and Employment Change will all be of interest to those invested in the Pound.
Thursday October 16th
A complete absence of British data on Thursday will likely see the Pound continue trending in the position dictated by Wednesday’s data. Traders will, however, be looking towards geopolitical changes and commodity market fluctuations to dictate investment.
Additionally the Eurozone data may have an effect on the Sterling exchange rate. Trade Balance data will be of particular interest to those trading the Pound.
Friday October 17th
Yet another complete absence of British economic data on Friday will likely see Sterling soften. Once again Eurozone data may come in to play with specific reference to construction output.
UPDATE
The Pound Sterling to US Dollar exchange rate is currently trending in the region of 1.6072.
The Pound Sterling to Euro exchange rate is currently trending in the region of 1.2656.
As the currency market endures volatility cause by risk-averse investors the Pound has continued to decline against the majority of its most traded currency peers. Tempered bets on the timing of a rate revision by the Bank of England have also compounded the Sterling losses.
Monday’s Lloyds Employment Confidence advanced from 6 to 10, but this has had little impact on the Pound. The continued falling price of crude oil is likely to cause Sterling to continue to depreciate with Brent set for a 4-year low.
