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The strongest factors influencing the direction and momentum of Foreign Exchange (FX) rates are changes in the key interest rates, themselves highly sensitive to macroeconomic data such as inflation and economic growth, as well as geopolitical concerns. Higher interest rates tend to render the currency more attractive (and vice versa) which in turn can result in it strengthening versus other currencies.
In the UK, interest rate policy is determined by the Bank of England’s (BoE) Monetary Policy Committee (MPC), which meets several times a year and whose decisions are closely watched by all FX traders, but especially those trading Pound Sterling (GBP).
In the US, key interest rate decision-making body is the Federal Reserve’s (Fed) Federal Open Market Committee (FOMC), influencing the US Dollar (USD), while for the single currency Euro (EUR) in the Eurozone, it is the European Central Bank (ECB).
The following events this week could have a major impact on FX markets.
GBP
Most of the Pound’s movements this week will likely be a product of the BoE’s interest rate decision on Thursday (12:00pm). Once again, the rate is expected unchanged, but all the focus will be on the voting. With the previous two meetings (22 Mar & 10 May) producing a 7-to-2 split of doves vs. hawks, markets will be looking to see if more of the MPC’s centrist members have turned hawkish. This could indicate a higher chance of an interest rate hike in August and help GBP strengthen.
The BoE Governor Carney and Chancellor Hammond will also speak at the annual Mansion House dinner (Thurs, evening), setting out their views on post-Brexit financial services regulations and the state of the UK economy after lacklustre start of the year. Their comments could alter projections for economic growth and inflation, with a rosier outlook potentially supporting GBP.
As always, watch for any news on Brexit for its potential to move GBP currency pairs. While Prime Minster Theresa May has managed to so-far successfully fend off “soft Brexit” amendments proposed by the House of Lords (more this Weds), a gulf is widening between Brexit hardliners and pro-EU Tory MPs. Any more Brexit uncertainty, both internally in the UK and in UK-EU negotiations, could put GBP under additional pressure.
EUR
A mixture of Central Bank speakers and macroeconomic data will drive the single currency Euro this week.
On Wednesday, the ECB Central Bank Forum in Sintra, Portugal will feature several key global figures, with ECB President Draghi, Fed Chairman Powell and Bank of Japan Governor Kuroda speaking (with a potential influence on all major FX pairs).
In macro data this week, look out for potential EUR movements after release of June flash Manufacturing & Services PMI figures from France, Germany and the Eurozone on Friday (7:45-9am). Current economist consensus is expecting initial PMI figures that are slightly weaker or unchanged from May data, to continue the Eurozone economic downtrend that began late last year. Better than expected PMI numbers, however, would indicate a recovery in EU economies and could lead to stronger EUR.
USD
The Dollar could derive some benefit this week from a new batch of State-side housing data, with both May Housing Starts (Tue, 1:30pm) and Existing Home Sales (Weds, 3pm) expected to recover after falls in April. Better than expected housing market data could bolster good news of US economic growth, strengthening USD against peers.
The June Philly Fed index (Thurs, 1:30pm) is expected to fall this month after May’s unexpectedly large print (biggest since May 2017) and return to the levels seen in Q4 2017. A stronger than expected reading could prove bullish for the USD, while a weaker reading could send the Dollar lower.
Manufacturing & Services PMI (Fri, 2:45pm) could also have a strong impact on the Dollar, with manufacturing PMI expected to fall in June flash figures, while Services index is expected to rise. Any divergence from these expectations could send USD higher or lower (given that better than expected PMI data typically strengthens the national currency).
On the geopolitical front, be on the look out for any developments with regards to US trade war confrontation with China, EU, Canada and Mexico. With major global players introducing reciprocal trade tariffs, markets will be looking to see if either side is willing to return to the negotiating table. Any sign of diffusing trade tensions could benefit the USD, although with regards to EU tariffs, this could have a neutral effect on EUR/USD, with both currencies benefiting equally.
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Tuesday 19 June
Major Intl Economic Data
13:30 Housing Starts, Building Permits (US)
Wednesday 20 June
Major Intl Economic Data
07:00 Producer Price Inflation (Germany)
14:30 ECB Central Bank Forum
15:00 Existing Home Sales (US)
Thursday 21 June
Major UK Economic Data
12:00 Bank of England Interest rate decision
evening Mansion House speeches
Major Intl Economic Data
13:30 Philly Fed (US)
21:30 Fed stress test results for big banks
Friday 22 June
Major Intl Economic Data
07:45 Flash PMI Manufacturing & Services (France)
08:30 Flash PMI Manufacturing & Services (Germany)
09:00 Flash PMI Manufacturing & Services (Eurozone)
14:45 Flash PMI Manufacturing & Services (USA)
Technicals
Technicals
Technicals
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