Sterling struggling to hold onto gains
We mentioned last week that £-€ rates have been well supported above 1.16 levels for some time now. And whilst 1.17 mid-market has been breached a fair number of times in recent months, there is no support to remain there. Looking back on charts and nearly every time we have been trading over 1.17 in Q3, rates have dropped below 5-10 days later. A trend to keep an eye on if we spike up again.
It's not the best start to the week for £ hitting a 10-day low versus the € and a 1-month low versus the $ currently. Much of that is owed to the stock market trading softer today on the back of concerns that China is heading towards a hard reset of its economy. Another reason is the guesswork at play in what the BoE will announce on Thursday. There will be no changes to policy, but guidance at this point is what the market is after.
Just how serious the developments in China are will show at the Fed meeting on Wednesday. A less dovish message and caution in tapering will cement that central bank rate hikes may be further away than we think. We may see £-$ rates trade higher at this time, but the next day the BoE could announce the exact same thing. Interest rates hold the key in a currencies chance of some significant gains, hence why these meetings are important.
This week also sees a bit of a super Thursday with PMI figures due out from the majors. All releases are expected to be relatively unchanged if not slightly less than before, as economic growth slows. Obviously any change to what's forecast and we could see some volatility. We expect to see a slow start to the week in terms of trading until Wednesday evening/Thursday morning.