The Pound enters the last half-week of 2013 in a strong vein of form against the majority of its most-traded currency peers. With recent GDP figures printing extremely positively in Britain, thanks to robust private sector performances in Services, Manufacturing and Construction Sterling has enjoyed a purple patch on the currency market during the second half of the year.
As we enter the week, the Pound is currently trading at a 1.5-year high against the New Zealand Dollar (GBP/NZD), a 28-month high against the US Dollar (GBP/USD) and a 4-year high against both the Australian Dollar (GBP/AUD) and the Canadian Dollar (GBP/CAD).
GBP/USD Outlook
After momentarily breaching the key 1.6500 level for the first time in over two years on Friday, GBP/USD is currently selling at around 1.6480. There are a few important releases this week, which could provide stimulus to send the Pound to US Dollar exchange rate back above 1.6500.
Later on this afternoon, US Pending Home Sales are predicted to print at -0.2%, but this is unlikely to have a significant impact on the US Dollar.
However, Thursday’s Manufacturing reports are likely to carry much more weight. UK Manufacturing is expected to print at 58.2 for December, just below November’s 3-year high of 58.4, which is likely to lend some support to the UK currency. The US equivalent ISM Manufacturing print is predicted to come in slightly lower at 56.9.
If the UK figure comes in above-target, or if the US report misses expectations, then it is entirely possible that GBP/USD could rise back above 1.6500 during this week’s session.
GBP/EUR Forecast
The Sterling to Euro exchange rate (GBP/EUR) is currently languishing just below key psychological resistance at 1.2000. Traders seem uneasy sending Sterling above this level, which has only been breached on 16 occasions since January earlier this year, because the Eurozone appears to be entering a period of relative calm.
The only data to come out of the 17-nation bloc – soon-to-be 18-nation bloc when Latvia joins the EMU on January 1st – this week is the Manufacturing numbers on Thursday. The German PMI is anticipated to remain at 54.2 during December and the Eurozone figure is likely to stay at 52.7.
So unless the UK Manufacturing PMI impresses, it is unlikely that GBP/EUR will settle above 1.2000 this week.
GBP versus Commodity Currencies
The Pound is currently riding high against the commodity bloc, and with Chinese Manufacturing set to have slowed from 51.4 to 51.2 during December it is possible that Sterling will extend its gains against the risk-sensitive Australian Dollar, New Zealand Dollar and Canadian Dollar.
With both the Reserve Bank of Australia and the Bank of Canada striking dovish notes in recent press conferences the Pound is liable to rally further against AUD and CAD as speculative investors continue to bet on rate cuts in Australia and Canada.
The Reserve Bank of New Zealand has the most hawkish outlook of all the major Central Banks at this moment in time, but because of the ‘Kiwi’ Dollar’s status as a high-risk currency, GBP/NZD can be expected to maintain its current strong levels as markets consider the possible impacts of further tapering from the Federal Reserve.
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