A story of softness
Light data week ahead
The Pound appeared to rally earlier in the week before softening as the week came to a close. Sterling rose to around 1.40 against the US Dollar and 1.16 versus the Euro at its peak. Some stronger UK data published at the end of last week is bolstering the Pound going into this week, alongside a new round of vaccinations being introduced for younger age groups. It's a lighter data calendar this week, so the Pound could be influenced by market sentiment as well as any geopolitical developments. Housing and sales data will be released in the first half of the week.
The Euro has been strengthening of late, marking its fourth weekly gain on a trade-weighted basis last week. The Pound peaked on Monday at 1.1643 and then tumbled by around 1.5% in the remaining sessions. The general outlook for the Eurozone has improved as the bloc's vaccination programme gathers pace, and economies plan their reopening. Data from the Eurozone's largest economy, Germany, will be released in the week ahead, highlighting confidence and business expectations. Meanwhile, the end of the week will see inflation data released for both Germany and the Eurozone as a whole. The Euro may also be sensitive to geopolitical and central bank developments elsewhere this week, including the upcoming US Federal Reserve gathering. European Central Bank Chief Christine Lagarde will speak on Wednesday.
The US Dollar story has been one of softness of late, with the Buck posting a third week of consecutive losses on a trade-weighted basis last week. The Pound rose by around 1.4% in the early part of the week to the 1.40 level before losing most of its gains. As data came in beating expectations, the Dollar weakened as investors sought other higher-risk assets. One of the main highlights for those interested in the Dollar will be this week's Federal Reserve meeting in case any clues are revealed as to what the future of monetary policy may hold. Additionally, politics may play a part in USD value, with President Joe Biden expected to soon announce a new economic package totalling $1tn, which will see some of America's wealthiest households pay more tax. Data due to be published in the week ahead includes Durable Goods Orders, Consumer Confidence, and Personal Spending.
AUD and NZD
Watching the banks
Against the Aussie, the Pound rose by around 1.3% between Monday and Wednesday before gradually drifting lower. Meanwhile, versus the Kiwi, Sterling increased by 1.0% on Monday before trending lower for the rest of the week. The Australian and New Zealand Dollars both gained off the back of the Bank of Canada's hawkish stance where it suggested it could hike rates at the end of 2022, which gave commodity-linked currencies a boost. Investors are now questioning whether other central banks may follow suit. Both the Reserve Bank of Australia and Reserve Bank of New Zealand often have higher interest rates than other nations, which can increase interest in the Aussie and Kiwi Dollars as investors search for higher yields.
In the week ahead, Australian inflation data will be released, followed by manufacturing stats in the early hours of next week. Meanwhile, New Zealand Balance of Trade, and Business Confidence numbers will print this week.
Interest rate decision ahead
The Pound climbed by 1.6% versus the Canadian Dollar early in the week but had erased its gains by Friday. The Canadian Dollar spiked last week when the Bank of Canada decided to taper its quantitative easing programme. Although this move had been speculated about, the recent spike in Covid cases had caused some doubt about whether this would come to fruition so soon. The central bank suggested it could begin increasing interest rates in the latter half of 2022. This week, Canadian Retail Sales, wage, and growth stats will be out, which could create some market movement.