GBP/EUR 1.1803 (0.8472)
It was a tough week for the EUR last week as the single currency faced selling pressure on a number of fronts. A less dovish FOMC meeting saw EUR selling as the USD clawed back some of the ground it lost during its recent weakness. Later in the week we saw very weak Eurozone CPI and unemployment figures, once again setting the EUR on a course to further selling. This is a week of heavy fundamental data from the Eurozone and with Cyprus now beginning to seek further assistance and further political unrest in Greece the EUR has further headwinds to face.
The first round of data the Euro will have to face comes in the form of CPI readings today. Manufacturing PMI data is scheduled for release and growth in the industry is expected to remain unchanged at 51.3, with recent EUR data missing to the downside another weaker than expected release may put the single currency on the back foot once again, particularly if we see a fall back sub 50 level.
Tomorrow the European Commission release their economic growth forecasts and this all leads into Thursday’s ECB policy and rate announcement. There has been increased calls for further ECB action to help boost growth, record high unemployment and a disastrous inflation reading may well force the ECB’s hand. There have already been plenty of options discussed by the ECB from possible negative deposit rates to a new round of LTRO funding. We’ll have to wait and see if there is any action at all but the Euro remains vulnerable.
There was obviously a lot of USD talk last week post FOMC and towards the end of the week there was some Fed members vocally supporting tapering to begin as soon as possible. The Dallas Fed president Richard Fisher spoke on Friday and he certainly supported tapering begin as soon as possible, driving US stocks lower into the close late on Friday, adding some weight behind recent USD demand.
The Asian session overnight continued where the US left off with equity markets struggling to achieve gains but the European session has opened higher. We do not expect the USD rise in strength to be plain sailing however, over the next couple of weeks we will be seeing October economic data from the US and these will be the preliminary reading for the shutdown period and may well point to a far weaker economy than is currently expected. Today we have the August and September Factory orders released with two further Fed speakers later in the day.
The pound had a mixed bag last week, losing ground against a broadly firmer USD but gaining ground on the generally weak EUR. The BOE meeting this week should help GBP direction but with the BOE not expected to act this week, or change their recent rhetoric, the pound may well be dictated by action in the US and Europe.