How is Sterling likely to Perform this Week?
Following its stellar performance last week the Pound appears to have started this week’s session a little more subdued, but will this recent downturn persist for the entire week or is it just a slight correction?
At the time of writing the GBP/EUR is down 0.3%, while GBP/USD has slumped 0.6% from its opening levels this week.
UK data is likely to be a source of frustration for GBP investors in the first half of this week, with an expected dip in house prices and slid in consumer credit possibly pressuring the Pound.
Wednesday’s consumer confidence is also unlikely to offer much support for Sterling either, with sentiment expected to hold at a four-year low this month.
The second half of the week may offer some respite for the Pound however, with economists forecasting that the latest UK Manufacturing PMI, while show that factory activity ticked higher at the start of this year.
GBP/EUR May Appreciate if Eurozone Inflation Dips as Forecast
While the Pound was able to advance against the Euro last week the pairing gains continue to be trimmed as markets continue to flock to the single currency in light of the Eurozone’s stellar growth last year.
This is likely to be reinforced this week as the Eurozone’s fourth quarter GDP figures are expected to confirm that the bloc grew at its fastest pace in a decade in 2017, prompting further gains for EUR.
However the Euro is likely to cede ground on Wednesday with the release of the Eurozone’s latest CPI figures, with analysts predicting that inflation will fall from 1.4% to a six-month low of 1.3% in January.
This will leave inflation even further from the European Central Bank’s (ECB) target rate of 2% and may undermine hopes of a possible rate hike from the bank in 2018.
Movement in GBP/USD to be Dominated by Fed Rate Decision
Much has been made of the recent surge in the GBP/USD exchange rate, with the pairing having briefly climbed to $1.43 last week, up nearly 10 cents in just a single month.
However while some recent upbeat figures have certainly helped to bolster the Pound, the recent jump in GBP/USD appears have been driven just as much by US Dollar weakness.
This could leave the Pound a little exposed to a rebound in the US Dollar this week as investors focus on the Federal Reserve’s first policy meeting of 2018.
While the bank is not expected to make any alterations to its monetary policy at the upcoming meeting, markets will be watching closely to see whether it maintains its guidance for three rate hikes this year.
Such an outcome would likely be positive for the US Dollar and stave off another advance for GBP/USD this week.
GBP Long-Term Forecast: Brexit to Return to Centre Stage
Looking a little further ahead the GBP exchange rate is likely to find that Brexit is once again on everyone’s lips as markets gear up for the start of the second stage of negotiations in March.
The second phase of talks are likely to prompt even more volatility in the Pound as the UK government looks to negotiate its future trade relationship with the EU.
Given the economic impact this deal will likely have on the UK economy markets will be watching extremely closely to negotiations, with any hint that the UK may remain closely aligned to the EU likely to prove positive for Sterling.