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Currency market update

Last week saw significant movements across the board despite the Bank of England, European Central Bank, and Federal Reserve all keeping interest rates on hold as expected.

The key factor behind the movement was Pending Home sale figures from the US on Thursday, although this is very rarely looked upon as being a significant figure the fact that it came in at +5.3% against estimates of -1% and against a month on month previous of -4.9%, suggests there is some light at the end of the tunnel as far as the US economy is concerned.

This saw the US$ strengthen immediately against both Sterling and the Euro, and as a result of the particularly aggressive movement of the Dollar against the Euro, Sterling was able to reclaim ground against the Euro pushing to levels not seen since mid March.

The week ahead shows a busy economic calendar, the most significant data being Consumer Price Index from the UK on Tuesday followed by the Bank of England’s Quarterly inflation report on Wednesday, if this hits the estimated level of 4.2% its anticipated Sterling will enjoy further strength as the market will conclude that the Bank of England will need to increase interest rates from 5% to deal with spiraling inflation in the UK.

Elsewhere it’s likely figures from the Euro Zone on Thursday will show Gross Domestic production is weakening, a clear signal that the Euro Zone face tough times ahead, this combined with a strengthening Dollar could spell short term weakness for the Euro.

by Currencies Direct.

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