German business sentiment data could offer the euro further support while sterling remains at risk ahead of the speech from Mark Carney. Sterling could take a fresh tumble should the Bank of England Governor attempt to untangle expectations about UK monetary policy with more forward guidance. After last week’s Federal Reserve minutes did little to unravel expectations about a September stimulus taper, investors will watch for US data on house prices and consumer confidence to ensure the numbers don’t stand in the way of a return to more normal US monetary policy. In anticipation of a less accommodative US central bank, global investors are continuing to aggressively realign portfolios, selling emerging market currencies in what has quickly become a rout. The Reserve Bank of India has failed to stop its rupee sinking to another all-time low while Brazil’s central bank last week launched a desperate $60 billion FX intervention programme.
Sterling
The Pound will be at risk of further profit-taking ahead of Mark Carney’s speech and the Bank of England’s September 5 monetary policy meeting. On a number of occasions this year the pound has suffered aggressive declines amid concerns about dovish UK monetary policy and sterling could weaken sharply should Carney attempt to strengthen his “lower rates for longer” policy pledge.
US dollar
US dollar strength against emerging market currencies may support the greenback against its major counterparts over the coming sessions ahead of next month’s critical US unemployment data and the Federal Reserve’s next monetary policy meeting. However, weak US data this week on consumer spending and confidence, as well as revised US GDP data could hurt the US dollar by suggesting that the Fed will take a very gradual approach to reining in its monthly stimulus. Last week, the US dollar snapped back from a two-month low against a basket of currencies to hit a 1-week high after minutes from the Fed’s July meeting did little to unravel growing expectations of a September stimulus taper. The greenback also soared to multi-year highs against various emerging market currencies such as the Indian rupee and Brazilian real as investors organised themselves for less accommodative US monetary policy.
Euro
Key German economic data will be under the spotlight this week with forecasts suggesting the data may offer the euro support. However, Friday’s eurozone inflation and unemployment data may give traders more accurate signals about the health of the 17-member economy, and the outlook for monetary policy in front of the European Central Bank’s September 5 meeting.