Global Themes

Overnight the Australian rallied 1 percent against several currencies including the US dollar and Sterling after Australia kept interest rates (2%) on hold as expected. In addition, the Reserve Bank of Australia played down the need for a weaker currency. The Indian Rupee also jumped after India’s central bank made no changes to rates (6.25%) early this morning.

The currency to watch this week, Sterling, slipped yesterday after UK manufacturing data again highlighted how a stronger Sterling exchange rate is hurting UK exports to the Euro Zone. All eyes will be on Thursday’s multiple Bank of England (BOE) announcements which will be a first for currency markets. 

GBP

This Thursday is being publicised as ‘mega-BOE-Thursday’, with Britain’s central bank set to release for the first time its latest interest rate decision, its meeting minutes and the high-profile quarterly Inflation Report on the very same day. The meeting minutes and the post-Inflation Report conference are expected to reveal that a small minority group of BOE members have started to vote for a rate rise.

Although the BOE is not expected to raise rates until 2016, these hawkish signals could see the pound rally back towards last month’s short-lived spike to 7-year highs versus the Euro - unless BOE Governor Mark Carney issues a new warning about Sterling strength.

USD

Friday’s US non-farm payrolls report will be heavily scrutinised after the Federal Reserve, in several July announcements, said that it may raise interest rates when it sees “some further improvement” in employment conditions. A strong payrolls (jobs growth) number could see the US dollar appreciate further if investors feel the Fed will hike rates on September 17, and potentially again in December 2015. Last week a strengthening US currency rose to record highs against several emerging market currencies, forcing Mexico to launch emergency intervention to protect its peso.

EUR

In the Euro zone, German factory orders and several Euro Zone industry (PMI) surveys are are likely to show an improving economic growth outlook. The data could improve Euro sentiment if investors believe the Greek crisis has had a limited negative impact on business activity. Greece’s stock market re-opened yesterday after several weeks closed and suffered severe losses. The Euro is trading just 1.6 percent above its weakest levels since April against the US dollar.