Can the pound build on recent gains?

Sterling edged ever so slightly higher on Friday and managed to largely hold these gains over the weekend.

GBP/EUR begins the week trading in the region of €1.1404, GBP/USD is holding above $1.30, GBP/AUD remains close to recent highs of AU$1.6955, GBP/NZD is within touching distance of a three-week high of NZ$1.7802 and GBP/CAD is fluctuating around C$1.6893.

Will the next five days be pound-positive? Keep scrolling to find out…

What’s been happening?

After spending most of June a bit down in the dumps following the UK general election, the pound bounced back slightly as the month drew to a close.

Sterling hit a five-week high versus the US dollar and a 10-day high against the euro.

The pound remained trading in a stronger position despite Friday’s UK GDP data confirming that the domestic economy expanded at a rate of just 0.2% in the first quarter of 2017.

The result was expected, but some speculated that the slowdown in the all-important UK services sector might be enough to push the Bank of England (BoE) into increasing interest rates in the not too distant future.

The GBP/EUR exchange rate was able to gain about a third of a cent on Friday even as the Eurozone’s latest inflation report came in slightly better than forecast.

It had been predicted that the annual rate of inflation would recede from 1.4% to 1.2%, but the currency bloc’s CPI only dipped to 1.3% in June.

Comments issued over the weekend could also lend the euro support in the days ahead.

German Bundesbank President and European Central Bank (ECB) official Jens Weidmann stated that the central bank is considering ways of moving away from its currently ultra-loose approach to monetary policy.

Weidmann stated; ‘What we are discussing and even arguing about is how expansive monetary policy should be given our [inflation] target.’

What's coming up?

The fight could go out of the pound this week if Markit’s trio of PMI reports indicate that UK economic output slowed further in the second quarter of the year.

The first of the three indexes is due out this morning, with the manufacturing measure believed to have edged from 56.7 to 56.3 in June.

This would be a pretty sturdy result, but if the pace of growth in the manufacturing sector is shown to have declined by more than forecast, the pound may be pressured lower.

The Eurozone’s unemployment report is less likely to have an impact on the GBP/EUR exchange rate than the UK’s manufacturing result unless the jobless rate surprises. As it stands, the level of unemployment in the currency bloc is predicted to have held at 9.3%.

US manufacturing data could inspire some GBP/USD movement later in the day, with upbeat figures having the potential to drive the pound back from its recent multi-week highs.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.