The pound saw its biggest daily jump in over two months towards the end of last week, lifted by news that UK lawmakers voted to stop the new Prime Minister from suspending Parliament in a bid to prevent a no-deal Brexit being blocked. Whilst a no-deal is still widely expected, this did give some hope of a softer Brexit and the pound reacted accordingly.
The US Dollar has this morning gained some ground against its peers as rising tensions in the Middle East have pushed investors to flock to the safe haven currencies such as USD and JPY. The Fed will be holding their monetary policy and interest rate meetings next week which could cause a real stir on the markets. It was looking certain that the Fed announce a 50 basis point interest rate cut but the chances of this are slimming by the day. Any hint as to what the Feds decision will be should cause volatility. Expect the greenback to be very sensitive to economic releases and Fed related speeches over the next week or so.
The week ahead
GBP – The main market mover this week will undoubtedly be the announcement of the new Conservative Party leader, expected tomorrow. Boris Johnson is looking like a near certainty to take the reins, which shouldn’t move the markets too significantly as it is likely already priced in to the cost of the pound. Should Jeremy Hunt surprise, however, then expect the pound to shoot up, as he is seen as less likely to take the UK out of the EU without a deal. Andy Haldane, BoE Chief Economist, will also be making a speech tomorrow afternoon. Interest rates across the world are currently under close scrutiny so investors will be listening out for his view on future monetary policy.
EUR – The European Central Bank (ECB) will be announcing their interest rate decision on Thursday. This is very much up in the air at the moment, with chances of a rate cut being priced in at just over 50%. As this is clearly not fully priced into the markets, should the ECB cut interest rates then expect the Euro to weaken across the board. This would probably be quite a sharp, instant decrease too. Eurozone services and manufacturing PMI data will be released on Wednesday morning, which also have the potential to move the single currency.
USD – The U.S. will be releasing second quarter Gross Domestic Product (GDP) figures on Friday afternoon, which shows overall economic growth. With the Fed rate decision next week, this announcement is now hugely important, as it could influence whether the Fed do decide to cut rates or not. Should this result disappoint, expect the greenback to weaken as the chances of a rate cut increase. Housing data out of the U.S. tomorrow could also have a bearing on next weeks outcome, so worth keeping an eye on this too.