Foreign Currency Exchange

Last week the British and Eurozone economies remained steady with the exchange rate range bound between 1.2606 and 1.2745. This was caused by a quiet week in terms of data releases with the Eurozone unemployment figures and the UK consumer credit figures bringing no major surprises.

The start of this week has seen some negative data coming from the CBI (Confederation of British Industry) and Experian survey, with manufacturers across the UK expecting production to fall in the next three months. HSBC, Europe’s largest bank, has also reported a 28% drop in profits as it announced its first half results.

Looking ahead to the rest of the week, it is expected that the Eurozone Producer Price Index released on Tuesday is to increase from 7.1% to 7.9% YOY, adding to Eurozone inflation. Despite this the Eurozone retail sales figures are expected to show a 1.3% decline YOY. Also out this week is the German trade balance which is expected to show a 1.5b increase YOY which is likely to strengthen the euro in the short term. As well as this the ECB rate decision is released on Thursday where they are expected to keep rates on hold. Some economists are speculating that the ECB may cut rates towards the end of the year which could lead to a slight bias to sterling strength given the need for the market to factor in the cut.

The UK also has some important data out this week with the Nationwide consumer confidence report released on Tuesday and the Bank of England rate decision on Thursday. It is expected the BoE will keep rates on hold after all of the 76 economists polled by Reuters said the Monetary Policy Committee would leave rates at 5%.With the data released this week it is expected that the exchange rate will follow a similar pattern as last week, with both the UK economy and the Eurozone economy looking bleak.