As expected we saw Sterling continue its recent strength right up to the end of last week with GBP/USD pushing well into the 1.56's by the end of Friday. This week has started in much the same way with Sterling continuing to push higher against most currencies, although at a much more sedate pace to the last two weeks. The next level for GBP/USD will be 1.57 which has been tested a few times this week but has yet to push through. We saw the rate bounce off this level back to below 1.50 in Mid-June but this looks unlikely to happen this time as Sterling has much more support behind it then it did in June. If the rate were to come back down it would likely be a gradual slide, rather than a sharp decline. If you are a buyer of USD look to try and secure levels between 1.56-1.57 as the rates are heading towards the best levels since February.USD sellers will be hoping for some good news from the FOMC minutes released tonight at 19:00 which will give further details on any possible tapering of the U.S. stimulus that the market has been enjoying for the last few years and some guidance on any possible interest rate rise. If there is an indication that there is going to be a move on interest rates or tapering of QE in September, we may see the markets react negatively and this could spark a bout of Dollar buying. As one commentator put it this week the "markets are hearing what they want to fear". It seems they are unwilling to let go of the status quo that we have had over the last couple of years and are fearing any change even if it is because economies are recovering.
The surprise improvement in the Eurozone economy last week has seen the Euro continue to gain against most currencies besides Sterling with EUR/USD pushing above 1.34 yesterday before settling in the mid 1.33's. Markit manufacturing and services PMI data out of Germany and the Eurozone tomorrow morning will give further indication of an improvement if they come in above expectation. Friday also sees the release of German GDP figures which should confirm an improvement of 0.7% in the last quarter. However sometimes these figures can be revised, normally downwards, so Euro sellers would want to see the figure come in as expected to hold the recent EUR gains. USD buyers should place orders at 1.34 to catch anymore moves back above this level. The UK GDP figure is also confirmed on Friday morning, again this is expected to come in on expectation at 0.6%.
The AUD has started to weaken again after its short lived recovery over the last two weeks, this new slump was brought on by the release of the Reserve Bank of Australia (RBA) minutes in the early hours of Tuesday morning which detailed the reasons for the latest interest rate cut and how the committee views the economy. Of most concern was the pressure from the Chinese slowdown and their growth rate being below the target level of 7.5%. China has been slowing down its investment in Australia over the course of the year and this looks set to continue along with Australia's policy of cutting their interest rate, with a move to 2.25% expected next month. We are back to near the highs of the year for EUR/AUD with the current rate in the mid 1.48's and a move to over 1.50 could be on the cards in the next few weeks, think about placing an order around 1.50 to catch any spike upwards. AUD/USD looks set to move back below 0.90 in the near future, and possibly back to the lows of the year, so if you buy AUD you would want to look at securing levels of around 0.8950.
Finally the annual Jackson Hole symposium kicks off tomorrow where the great and the good of industry and central banks will meet to discuss economics. Normally this is used by the central banks to prepare markets for any shift in policy however this year neither Ben Bernanke, Mario Draghi or Mark Carney will be there, instead sending their deputies so expect a lot of fishing and not much else.
Please get in touch if you would like information on any other currency pair.
Have a good bank holiday weekend.
Written by David McNeill