Exchange Rate Outlook

This week starts with inflation data for the Eurozone in the form of Consumer Price Index figures which is expected to show levels remain on hold at 0.8% which is still concerningly low. Inflation figures are a big area of worry for the European Central Bank (ECB) as they, like most central banks, are targetted to keep inflation levels at a steady and constant reading, in the UK this level is 2%. So while the level of inflation is falling (a term called dis-inflation) the ECB are coming under mounting perssure to act however Mario Draghi, head of the Central Bank has stated that while inflation is a concern they do not need to act yet. So, should the figures later this morning show another drop it will put yet more pressure on Mr Draghi and his team and could also mean we see some EUR weakness.

Tomorrow the main focus of the currency market is on the latest set of minutes from the Reserve Bank of Australia which will show what the bank discussed in terms of the Australian economy and more noteably whether there is the chance of any change in interest rates. Following this there is an economic sentiment survey for the Eurozone and then inflation figures for the US both of which could have a large impact on both the EUR and the USD respectively. Finally on Tuesday the Governor of the Bank of England, Mark Carney, is due to speak and so any comments from Mr Carney willbe closely watched for any indication as to how the Bank see the UK economy and any future policies potentially including whether they will consider increasing interest rates in the short term.

Wednesday is the key day for Sterling exchange rates with UK unemployment, the Bank of England minutes from this months’ interest rate decision and the budget from Chancellor George Osborne all of which could have a large impact on the currency markets. As previously mentioned on this currency blog, should we see unemployment fall yet further it could provide a boost to Sterling exchange rates and lead to more questions as to whether the BoE will hike interest rates this year. The minutes from the latest interest rate decision will give an indication into whether the BoE discussed amending the Quantitative Easing programme or interest rates while finally the budget can be very difficult to predict but if George Osborne highlights the improved economic forecast we may see some Sterling strength. Finally on Wednesday we have the latest US interest rate decision and while it is expected that rates will remain on hold it could still cause a lot of market movement should there be a surprise decision.

On Thursday we have the Swiss National Bank’s latest interest rate decision and also the results of some recent US bank stress test which could have an impact on not only the CHF and the USD but, especially the bank tests could have a wider ranging impact on the markets. Finally the week ends with a quieter day with Canadian inflation figures the main news of note.

While all of this economic data is due it will also be important to monitor the situation in Crimea and any knock on effects the tension in Eastern Europe may cause. So, it looks set to be another busy week for the currency market.