Today’s Headlines:
- Key focus on ‘PMI’ data amid global reports: The Purchasing Managers’ Index report is among the most up-to-date data sets available and often influences short-term price action in the FX markets.
- ECB interest rate decision and its impact on euro: With the Eurozone likely to cut interest rates, the FX markets are expected to scrutinize ECB commentary, potentially increasing volatility for Euro exchange rates.
- UK election countdown: With just 31 days until the UK election and Labour leading in the polls, our research shows notably increased currency movements during previous elections, highlighting the importance of considering your FX strategy.
In Depth: This Week’s Market Update
The week ahead sees plenty of data from around the world, with a key focus on ‘PMI’ data midweek. The Purchasing Managers’ Index report is among the most up-to-date data sets we get and often influences short-term price action in the FX markets. Typically, data is quite backward-looking over weeks or months, but this data is very recent and therefore closely followed.
Thursday sees the European Central Bank (ECB) meeting for their latest interest rate decision. The Eurozone is widely anticipated to cut interest rates, although inflation data toward the end of last week calls into question the number and pace of future cuts, with inflation remaining above target.
Interest rates are one of the most important factors triggering currency market movements. With the Eurozone very likely to cut rates, being the first among the UK, Eurozone, and US to do so, focus will be on the Euro, as well as the commentary by the ECB. The FX markets are likely to pore over the words and sentiment offered by the ECB, which could see increased volatility for Euro exchange rates.
It is now just 31 days until the UK election, with Labour still clearly ahead in the polls. Interestingly, the lead is very similar to Theresa May and the Conservatives in the 2017 General Election. This ultimately resulted in a hung parliament and is a reminder that nothing should be taken for granted where elections and currency movements are concerned.
Our research has indicated that previous elections saw a 5% swing in GBPEUR levels on either side of the election, with GBPUSD experiencing a 6% movement. We looked at the last six general elections to establish this, and it is a good reason why you should be considering your FX strategy if you are planning any transactions in the coming weeks and months.
Lumon has a number of options to capture and protect against volatility. Please speak to your account manager for more information regarding your options and how we can assist you in making informed decisions.
What events might move exchange rates this week?
GBP
- Wednesday – UK Services PMI
- Friday – UK GDP Estimate
EUR
- Wednesday – Eurozone Services PMI
- Thursday – Eurozone Interest Rate decision and Press Conference
- Friday – Eurozone GDP
USD
- Monday – US Manufacturing PMI
- Wednesday – US Services PMI
- Friday – US Unemployment data and Non-Farm Payrolls
