GBP/EUR 1.1973 (0.8355)
Markets ended last week on a positive note with US equities closing in positive territory. Much of this positive sentiment has continued into the Asian opening earlier this morning with the Nikkei in Japan closing up 1.54%. Generally markets are likely to trade in positive territory across the board today basking in the post historic accord reached with Iran on their nuclear programme. On the currency front, as would typically be the case much of the traditional safe haven currencies are being sold in favour of the higher yielding emerging market currencies. This is best reflected with the Japanese Yen falling to a six month low overnight. Closer to home both the pound and euro have posted overnight gains against the US Dollar, with EURUSD back above 1.35 and GBPUSD threatening to make a break through the 1.62 mark.
Looking ahead to this week, the eurozone’s twin woes of disinflation and unemployment will dominate the calendar. Friday sees the dual releases of the latest inflation rate and unemployment rate for the single currency region. These readings along with next week’s quarterly forecasts that the ECB will present, will help provide further clues as to whether Europe is heading for a period of low inflation or worse, deflation. As we have been highlighting for a while now, the economic fundamentals for the eurozone as a whole do not make good reading but in terms of FX, this has not always been reflected in the value of the euro. However, should we be approaching a period of weakening inflation and subsequent further loosening of monetary policies by the ECB then sooner or later, the euro is in line for a correction. Whether this week represents that line, we’ll have to wait and see.
Once a potentially quiet Monday passes, we have a very active week for both UK and US data releases too. Stateside starting tomorrow, we have a series of housing data which is then topped by the ever important Consumer Confidence Survey, all the more important as the US consumer heads into the festive spending season. For sterling, Wednesday is the day the busy schedule really kicks off with Q3 GDP expected to show the UK economy continued to grow at 1.5% year on year.