It has been yet another volatile week for sterling exchange rates, unfortunately, all moves over the last week were courtesy of speculation in reference to a BoE interest rate hike. We saw the GBPEUR rate reach lows of 1.11 and GBPUSD at 1.27 earlier in the week - but following bullish comments from Ian McCafferty overnight we saw the pound bounce back to 1.14 against the euro and above 1.30 against the dollar. It seems that more and more members are now in favour, or have at least accepted that inflation is rising so fast that an interest rate hike may now be needed to try and control it.
Another important event that occurred last week was the Bank of Canada having their first rate hike of 25 bps, this was an important moment as they are the first country outside of the USA to do a rate hike in recent years, and seem fairly confident about another over the next 12 months.
So what will affect exchange rates this week? On Monday the EU will release their CPI (Inflation) figures for last month, these numbers are expected to show a very slight increase, and on this basis I expect the euro will strengthen slightly after this release (If there is no change in the result)- the euro has been under some pressure over the last week so I feel traders will be ignoring a lot of EU based data and waiting for Draghi to speak on Thursday after the ECB rate decision.
Tuesday will be an important day for those of you looking to sell sterling, the UK will release their CPI data on Tuesday morning, currently, the expectation is that inflation should remain the same as last month, even possibly contract - however with the rate of inflation recently I don’t think it is unwarranted to expect that these figures could actually come out higher than expected. Now, higher inflation figures are actually bad for our economy, but traders will view this as another reason for the BoE to hike rates, thus the pound would strengthen after this release if it does come out stronger, so if that is what you are looking for, Tuesday may provide some good opportunities.
The next important day on the agenda will be Thursday, as mentioned earlier, the ECB will have their rate decision, and though there are no changes expected at all in reference to interest rates or quantitative easing, the markets will be waiting to hear from Mario Draghi to explain the state of the euro-zone economy at the moment and their expectations moving forward, as I always say with speeches, there is no point trying to predict what another human is going to say, so it is best to sit this decision out and either make your move before, or wait for the outcome. Expect a lot of volatility in euro exchange rates on Thursday until this is done.