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WILL STERLING BENEFIT FROM POSITIVE DATA?

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Sterling was on the whole steady apart from its continued upward trend against the US dollar

After the excitement of the General Election in the previous week, last week was a more timid affair and sterling was on the whole steady apart from its continued upward trend against the US dollar where it gained another couple of cents.

This week sees some important data releases from the UK, as excitement from the parliamentary elections settles, and the markets focus back on fundamental economic data from the UK. Tuesday sees release of the latest inflation figure from the UK, with a third straight month of 0% inflation forecast. Core inflation (excluding fluctuating food and energy prices) is still forecast to show a healthy 1% increase, and any movement above this could see sterling strengthen.

The main event of the week will be the release of minutes from the latest Bank of England (BoE) policy meeting on Wednesday. This will give insight into policy makers’ views on interest rates. Retail sales data on Thursday should show a pick-up throughout March. Finally, Friday will see BoE Governor Mark Carney speaking on two occasions. Investors will be listening for further cues on the BoE’s stance on interest rates.

Euro has (another) good week

It was a welcome break last week for the euro but strength against its major peers came from weakness elsewhere. It made overall gains against the US dollar after data showed that US consumer sentiment had moved down to the lowest level since November 2014, adding to concerns over the strength of the US economic recovery.

However, the spotlight remained on Greece as the country rushed to meet the deadline for its €750 million repayment to the International Monetary Fund (IMF) – by drawing upon its emergency IMF fund. Despite this reprieve, the question remains as to how matters will unfold for the beleaguered nation. Greek officials were set to hold talks with the euro area and the IMF on Friday, to discuss the ongoing and relentless pressure on Athens to try and make an agreement for aid as it runs out of cash reserves. Also discussed was the important issue of timing.

There is a lot of Eurozone data released this week. Tuesday is a busy day, with Consumer Price Index (CPI) data out at 10 am followed by ZEW German business confidence data later in the day – the former is expected to hold steady and the latter is forecast to fall slightly. On Thursday we have the release of Eurozone Purchasing Manager Indices and on Friday a raft of data for Germany, Europe’s power house.

US Dollar has (another) bad week

The US dollar will be looking for some relief this week, after the continued weakness it suffered over the previous week. With various US Federal Reserve members speaking this week, the focus will be on how they interpret a possible interest rate rise, especially since the US economy has been struggling recently.

Wednesday will see the release of the very important Federal Reserve meeting minutes. This will be used by investors to gauge the likelihood of an interest rate rise this year. Judging by recent data releases which have been poor, a rise seems further off, which would weaken the US dollar further. Weekly unemployment figures on Thursday are expected to remain stable, while a flash manufacturing Purchasing Managers’ Index (PMI) is expected to show a slight increase.

Friday will be just as important as Wednesday, with the release of the inflation data. This has been a figure that has dropped among major world economies, due to the low price of Oil. Given poor retail sales last week, and expected low levels inflation, there may be talk of the US heading towards deflation.

Russia to build foreign currency reserves; Norwegian krone rallies

At the end of last week Russia announced its intention to bolster its foreign currency reserves with the goal of improving its credit rating. The suggested levels of re-purchases are in the region of US$150 million per day. This created movement for the rouble on Friday afternoon.

With oil prices slowly beginning to rise, and speculators continuing to sell off the US dollar, the Norwegian krone found itself at a month’s high against the dollar, strengthening over 12% over the last 30 days.

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