Is the pound headed for new highs this week?

A Sterling surge before the weekend helped the pound close out the week in a stronger position against the euro and recover earlier losses against both the US and Australian dollars.

Over the last seven days GBP/EUR has recovered from €1.1451 to hit highs of €1.1741 while GBP/USD returned to trading in the region of $1.2526 after dropping to lows of $1.2385. GBP/AUD also bounced back from its worst levels of AU$1.6185 to trend in the region of AU$1.6470.

But can the pound’s run of gains continue? Read on to find out what to expect this week…

What’s been happening?

The pound ended the week on a high thanks to the UK’s latest current account report. One of economists’ big concerns about the post-referendum period was that the current account deficit could spiral, so the news that the shortfall actually shrank from -£25.7 billion in Q3 to -£12.1 billion in Q4 gave Sterling a significant boost.

The UK’s Q4 growth data was more mixed, with the rate of quarter-on-quarter expansion coming in at 0.7% (as forecast) but annual growth being revised down to 1.9%.

The pound’s gains against the euro were also the result of the Eurozone’s inflation stats showing a sharper-than-anticipated slowing in consumer price pressures. The CPI dropped from 2.0% to 1.5% in March.

What’s coming up?

There are quite a few influential data releases to focus on today, including the UK’s manufacturing PMI and the Eurozone’s unemployment figures.

Over in the US we also have the Markit manufacturing and composite PMIs, the ISM manufacturing PMI and the ISM employment report.

The UK’s manufacturing PMI will be followed by its construction and services equivalents later in the week. If these reports show that the UK economy closed out the first quarter of 2017 in a strong position, the pound’s recent run of gains could continue.

As the UK’s services sector accounts for over 70% of GDP, a strong showing from this measure could push GBP exchange rates to new highs.

However, economists have forecast that today’s Eurozone unemployment data will show a decline in joblessness from 9.6% to 9.5%. If that proves to be the case it could undermine some of the recent strength in the GBP/EUR exchange rate. Similarly, upbeat manufacturing data from the US would be US dollar supportive, potentially pushing GBP/USD back below $1.25.

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 looks after our large corporate clients, providing dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.