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Currency Events to Watch in Week Ahead: The Pound, Euro, US Dollar and Australian Dollar

Economic events to watch for exchange rate markets

The new week brings with it a slew of data releases that should help answer the question of whether or not the pound and dollar can continue their period of appreciation.

British Pound

The pound has soared as markets price the Remain vote winning the EU referendum in June. The big question is how long this dynamic can last. We hear that against the euro this dynamic could continue, while against the dollar there is no room left.

And how long until the GBP starts responding to data once more? Over the coming week we will find out as the much-watched Purchasing Managers Index, compiled by Markit, is released.

Events to Watch

  • June 1st: Manufacturing PMI. Market forecast: 49.9
  • June 2nd: Construction PMI. Market forecast: 51.8
  • June 3rd: Services PMI. Market forecast: 52.6

“We saw the first evidence of "Referendum effects" weighing on the April PMIs, and we expect this trend to continue into May, with downside risks seen for the key Manufacturing and Services PMIs in particular, but a softening in Construction PMI as well. 16Q2 growth will be weaker than the 0.3% q/q that both the BoE and NIESR expect.” - TD Securities.

US Dollar

The US dollar had a storming May, ensuring that in the last 11 years the dollar has advanced in May in 9 of these years. June is not so favourable though, and with expectations for a June/July interest rate rise having risen sharply over recent weeks all eyes will turn to the all-important labour market data numbers.

Events to Watch

  • June 3rd: Nonfarm Payrolls. Market forecast Change in Employment: +160K

“The impact from the ongoing Verizon workers’ strike should bias headline nonfarm payrolls lower, with the pace of jobs growth slowing to 145K in May and risks tilting to the downside. The unemployment rate should remain unchanged at 5.0% as a further influx into the labor force offsets the gains in household employment. Wages should post a modest 0.2% m/m gain and the annual pace of average hourly earnings growth should remain unchanged at 2.5% y/y.” - TD Securities.

Latest Pound / US Dollar Exchange Rates

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1.3612▲ + 0.61%

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1.3867

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1.3149 - 1.3203

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“We expect NFP to grow 160,000 slower than the 3m pace, leaving the unemployment rate unchanged at 5%. The slight weakness in the report could make it difficult to price a higher probability of a June hike unless Fed official push further.” - Bank of America Merrill Lynch Global Research.

  • June 1st: ISM Manufacturing (May). Markets forecast a reading of 50.5.

“The softening manufacturing sector tone has been reflected in various regional manufacturing sector PMIs, with the Empire, Philly and Richmond Fed indicators all falling sharply. The risks to this forecast are tilted to the downside, with the performance of new orders being the key wildcard,” say TD Securities.

The Euro

The euro exchange rate complex has endured a poor month of May. To be fair, when faced with the pound’s short-covering rally and the US dollar’s bounce on Fed interest rate expectations, any positive developments in the Eurozone would have had little impact on the currency.

But, the debate on the Euro ultimately rests on the European Central Bank’s intentions over future monetary policy (will they cut rates again, will they boost quantitative easing again?) and driving this decision making is the rate of inflation.

The ECB has taken extraordinary steps to try and boost price growth. This week we find out if the measures are working and what the ECB thinks about the latest developments in the Eurozone and global economy.

Events to Watch

  • Tuesday May 31st: Inflation forecast by economists to have risen to -0.1% from -0.2% previously.
  • June 2: ECB Rate Decision

“The ECB is in implementation mode, so Thursday’s meeting should be a straightforward affair. However, the macroeconomic projections will be updated, and are likely to show an upward revision to inflation this year, which will reinforce the ECB’s move to the sidelines for the rest of the year.” - TD Securities.

Australian Dollar

The Australian dollar has had a stinker of a month with momentum now firmly pitted against the currency. The problem for the Aussie is that inflation has fallen to alarming levels and the Reserve Bank of Australia feels compelled to stimulate prices by cutting interest rates. The side-effect is a sharply lower currency. However, it will be some weeks before we get the next set of inflation data.

In the meantime, all eyes are on GDP - the last thing the currency needs is data that suggests the wider economy is starting to suffer. Also watch dynamics in the iron ore market. Australia’s number one export is finding lacklustre demand from China pressure prices, which in turn keeps the AUD offered.

Events to Watch

  • June 1st: GDP for the first quarter. Markets forecast a reading of 0.7%

“Consumption and inventories (+0.2% each) and trade (+0.7%) to be offset by business investment (-0.5%) overall leaving Q1 GDP growth of around +0.8%, in turn lowering the annual rate from 3.0% back to trend 2.8% y/y.” - TD Securities.

  • Retail Sales: June 2nd. Market forecast: 0.3%

“Aussie consumers did not spend any of the petrol savings in Q1, so perhaps they saved for an Easter splurge. However, as confidence plummeted in April (-4%) perhaps we wait for a post-RBA cut spending spree.” - TD Securities.

  • Trade Balance: June 2nd. Market forecast: -2.1BN.

“We expect a sharp narrowing of the trade balance via a jump in exports via higher commodity prices, as well as a pickup in volumes. Imports are flat as a pickup in oil exports is offset by a soggy services sector.” - TD Securities.

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