Following on from last week, the Pound took advantage of broad Dollar weakness to rise to the highest level in 2-months and perhaps more significantly the UK currency finally broke through the major resistance at 1.9850 to signal a further move to the upside.
The neutral tone of the FOMC rate announcement last week combined with the price oil rising to $142 a barrel for the first time ever has weighed on Dollar sentiment and the Pound looks set to test the $2.00 level this week as the focus switches to the U.S non-farm payrolls report.
The Pound also made gains against the majority of the 16 most actively traded currencies on Friday and the improvement was hardly surprising since the UK current account deficit narrowed for the first time in three months.
However, a separate report from the Office of National Statistics showed the final estimates for economic growth in the first quarter was revised down due to a drop in services output and slower consumer spending.
Nevertheless, the Pound stood firm in the aftermath of the report as the numbers were largely in line with the Bank of England’s initial forecasts for growth and are what policy makers are relying on to rein in inflation.
In terms of economic data, the Pound may struggle to find support as the sparse supply of economic indicators should indicate further weakness in the economy.
The Purchasing Managers’ index of UK manufacturing and service sector growth is expected to slip below a reading of 50.0 while a separate report on consumer confidence will probably show a further decline in spending.
The Euro has made gains against both the Pound and the Dollar in the past week and the focus this week will inevitably fall on the ECB interest rate announcement on Thursday as policy makers are expected to lift borrowing costs by 25 basis points to 4.25%.
A number of ECB officials have frequently expressed their concerns on rising inflation and the impact on the broader economy but the tone of last month’s statement led to speculation that the Central Bank will implement a series of rate increases despite the mounting downside risks to growth.
The ECB have been quick to stress that a July rate hike would be a one-off and the focus will therefore fall on the tone and language used in the accompanying statement as traders look for any further indication of the probability of a further increase over the coming months.
The Dollar fell to the lowest level in 2-weeks against the Euro on Friday and closed above 1.9900 versus the Pound after the Federal Reserve failed to provide any further indication of a reversal in monetary policy following the most aggressive period of easing in 20-years.
The decline in Dollar sentiment coincides with the price of oil reaching a new record high on Friday while the Dow Jones Industrial Average headed for the worst June performance since the ‘Great Depression’.
The focus this week will surely fall on the U.S non farm payrolls report on Friday where employers probably cut jobs for the sixth straight month in June, emphasising the gradual softening in labour market conditions.
Data Released 30th June
U.K 09:30 Consumer Credit (May)
– Mortgage Application
– Mortgage Lending
EU 10:00 Harmonised Consumer Price Index (June)
U.S 14:45 Chicago PMI (June)
written by Adam Solomon
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- The Pound rises to the highest level in over a month versus the Euro despite Nationwide house prices falling to the lowest level on record
- Sterling soars to a fresh 14-year high against the Dollar as UK factory-gate prices increase to the highest level in 12-years
- The Dollar declines against the Euro after crude oil advances to the highest level on record
- The U.S dollar drops to the lowest level in a month versus the Pound despite an increase in Personal Income and U.S manufacturing
- The Pound increases to the highest level versus the Dollar since June 1981
