Weekly exchange rate forecast for GBP, EUR, USD: UK, US CPI in focus this week

Pound Sterling (GBP) exchange rate Could fall as inflation falls to -0.1%

A below forecast UK Services PMI and comparatively dovish set of Bank of England (BoE) meeting minutes kept the Pound under pressure last week. 

Today’s Consumer Price Index shows that the annual rate of UK inflation now stands at -0.1%. Subsequently the Pound could be pressured lower across the board. The UK’s jobs data could have a similar impact on GBP trading, with a strong increase in either positions or average earnings being Pound-positive. 

The Pound Sterling to Euro (GBP/EUR) exchange rate was trending in the region of 1.3515 on Monday.

Euro (EUR) Exchange Rate to Slide if ECB Increases Stimulus

Over the next few weeks any reports which add to the argument in favour of the European Central Bank (ECB) expanding stimulus measures have the potential to see the Euro reverse its recent gains against peers like the Pound and US Dollar.

Tomorrow’s ZEW Economic Sentiment Survey for Germany is one such report to watch. A notable decline in sentiment has been forecast – which isn’t surprising really given the Volkswagen scandal. As the week progresses Euro movement may also be caused by the Eurozone’s Industrial Production report and final inflation figures for September.

The common currency’s recent uptrend may continue if faltering Federal Reserve interest rate hike expectations keep driving the US Dollar lower. 

The Euro to Pound Sterling (EUR/GBP) exchange rate was trending in the region of 0.7398 on Monday  

Inflation, Confidence and Retail Sales to Impact US Dollar (USD) Exchange Rate 

US interest rate hike expectations have been considerably lower since the publication of a less-than-iimpressive Non-Farm Payrolls report and the minutes from the last Federal Open Market Committee (FOMC) policy meeting did little to support hopes of higher borrowing costs being introduced in the next couple of months.

>See also: Forecasting foreign exchange rate fluctuations

As policymakers have intimated that domestic ecostats need to improve before interest rate are adjusted, the direction taken by the US Dollar exchange rate this week will largely depend on how the key US releases (Advance Retail Sales, Consumer Price Inflation and Consumer Confidence) print.

If the reports show improvement, the US Dollar may recover ground lost against peers like the Euro. However, disappointing data would act as a nail in the coffin of 2015 rate hike hopes and drive the ‘Greenback’ lower still.  

The Pound Sterling to US Dollar (GBP/USD) exchange rate was trending in the region of 1.5368 on Monday 

Australian Dollar (AUD) Exchange Rate Riding High on Firmer Commodity Prices

A number of factors have contributed to the Australian Dollar’s recent uptrend, from firmer commodity prices to lower US interest rate hike expectations. A fairly neutral policy statement from the Reserve Bank of Australia (RBA) also aided the ‘Aussie’ rally seen last week and the currency remains higher against the Pound and US Dollar today.  

If this week’s Australian data prints well we could see the Australian Dollar achieve new multi-month highs over the next few days. The Aussie reports to take note of include the nation’s NAB Business Conditions/Confidence Survey, Consumer Inflation Expectation for October and Employment Rate/Employment Change numbers.   

The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was trending in the region of 2.0844 on Monday 

New Zealand Dollar (NZD) Exchange Rate Trending Higher this Week 

The ‘Kiwi’, like the Aussie, is benefiting from a souring in US interest rate hike expectations, with the commodity-driven currency advancing across the board over the course of last week.

Higher dairy prices are aiding the New Zealand Dollar’s advance and if the value of New Zealand’s key commodity continues to rise additional NZD exchange rate gains could be on the horizon. However, analysts with NAB believe the New Zealand Dollar could be poised for a reversal.

>Related: Responding to changes in foreign exchange markets

They state; ‘After this current squeeze in risk assets loses steam, we feel the balance of risks favour NZD downside. Only in two of our six scenarios does NZD gain, and we only assign a combined 20% chance of those two scenarios occurring.

What’s more, in our highest probability scenario NZD gets slammed by the twin shocks of rising US rates and higher volatility.’ 

The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate was trending in the region of 2.2817 on Monday

Canadian Dollar (CAD) Exchange Rate Shrugs off Unemployment Gain  

Friday’s disappointing Canadian employment report had little impact on the ‘Loonie’ before the weekend, with the commodity-driven currency managing to hold on to previous gains thanks to an uptick in oil prices.

The value of black gold has surged in recent weeks, bolstering the Canadian Dollar’s appeal and helping the currency move away from previous multi-year lows against peers like the Pound and US Dollar.

However, the fact that the Canadian unemployment rate increased to 7.1% is a cause for concern and if investors begin to bet that the Bank of Canada (BOC) will intervene in the currency market to support the domestic economy the Canadian Dollar’s bullish run could end. 

The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate was trending in the region of 1.9870 on Monday

Further reading: Countries with the highest income taxes

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