After a few weeks of calm we should see the currency market pick up this week with the end/start of the month falling in the middle of the week and  plenty of key economic data being released towards the end of the week. The key question is will the USD recover some of the losses it has suffered since the start of July, where it has moved from 1.4830 to over 1.54 in the space of less then 3 weeks, which represents a loss of just under 4%. Early indications from the data out yesterday suggests that a move back downwards towards 1.50 could be on the cards, as the GBP/USD rate fell 60 pips off the back of disappointing UK lending and mortgage approval figures.There is a possibility that we could have a combination of poor UK data followed by improved U.S. data towards the end of the week which would put Sterling under real pressure. Bank of England governor Mark Carney kept his powder dry last month and indeed the BoE minutes indicated that there had been a shift in the voting pattern with all members voting against a rise in quantitative easing. However I get the feeling that he would like to make a move at some point either with a change in the interest rate or by adding to the stimulus package. It may just be a case that he is going to slowly coax the committee round to his way of thinking before any action is taken. In any case Thursday's interest decision at 12pm should be interesting as even though the expectation is for the rate to be unchanged, no one has worked out what Carney's angle is yet.

The ECB will also announce their interest rate decision on Thursday with the expectation for it to also remain unchanged. The Euro has quietly been performing well over the last month especially against the Dollar with a 4% improvement in the EUR/USD rate and it has strengthened 2% against Sterling. ECB president Mario Draghi will give his usual press conference on Thursday at 1.30pm and it will be interesting to see what he says about the recent Euro strength and if he has any plans to curtail it. Expect volatility in EUR crosses before and during the press conference as the market will be trading on any comments from Draghi they feel are significant. If you are a seller of EUR into USD it would be wise to take advantage of the rates at the moment, before we get to Thursday and the possibility of a reversal. Think about booking half your trade now on a spot basis and then use orders to try and catch spikes in the rate off the back of the data releases for the other half. Speak to your trader to see what strategies you can use to maximize the value of your currency and protect against any adverse rate movements.

Friday brings a lot of U.S. data including the big Non-Farm payroll figure as well as the unemployment rate but before we get to those two, on Wednesday the U.S. GDP figure is out at 1.00pm followed by the Fed's interest decision and monthly policy statement at 7.00pm. In recent months Ben Bernanke has consistently hinted in his last few press conferences that he will be scaling back the Fed's monetary easing program,only for Bernanke to then change his tune a few weeks later. The initial reaction to his press conference usually ends up with a surge of Dollar buying as the markets get scared that the "tap" will be turned off. Do not be surprised if this is the case on Wednesday evening although to some extent the market will be lead by the GDP figure early in the day.

The Non-Farm payroll figure on Friday at 1.30pm is expected to be positive with estimates predicting a figure of 184,000 jobs added and as such the unemployment rate, released at the same time, is expected to fall to 7.5% from 7.6%. A jobs figure below expectation will be negative for the USD but given last months positive figure I would expect the figure to come in above expectation and so give a boost to USD. Since September last year the actual Non-Farm payroll figure has only been below the estimate on 2 occasions.

Lets recap the key data out this week:

Wednesday

  • Consumer Price Index Figure - Europe - 10.00am
  • GDP - U.S. - 1.30pm
  • Fed Interest Rate Decision and Monetary Policy Statement - U.S. - 7.00pm

Thursday

  • BoE Asset Purchase and Interest Rate Decision - UK - 12.00pm
  • ECB Interest Rate Decision - Europe - 12.45pm
  • ECB Monetary Policy Statement and Press Conference - Europe - 1.30pm

Friday

  • Non-Farm Payrolls - U.S. - 1.30pm
  • Unemployment Rate - U.S. - 1.30pm

As you can see it is going to be a busy week ahead with plenty of movement likely to be seen in the major currencies. This is definitely a period where you do not want to be caught short as the markets can move very quickly, so if you are risk averse think about booking any currency you need before Wednesday morning. If you are a little more courageous then by using orders you can take advantage of any movement in your favour while using stop losses to protect yourself if the rate moves against you.

If you have any questions or would like more information on the data coming out this week please do not hesitate to contact us.

Have a great week.

Written by David McNeill