The Pound, Euro, and US Dollar exchange rates could be in for some movement in the week ahead with events such as UK growth data and US producer prices set to be revealed.
Pound Forecast: UK Services Sector Risks Contraction
On Monday, PMI data from the dominant UK services sector will be released. A reading above 50.0 indicates economic expansion, but opinions are divided as to whether that can be achieved. Having come in at 50.2 in June, there’s a real risk that the print could turn negative as the ongoing political uncertainty continues to sap confidence. This would serve as a major blow for any hopes that the UK economy can manage to find growth in the third quarter of the year, with any shortfall likely to hit the Pound hard.
Euro Outlook: Will German Construction Data Impress?
German Construction PMI data is released on Tuesday and could provide some support for the struggling Euro. The reading came in at 50.0 for June, its third consecutive month of decline, but forecasts suggest a bounce could be seen this time around. Such news would at least take some pressure off the European Central Bank, which has been facing criticism for not doing enough in terms of stimulating the economy. In isolation, this number won’t detract for the need of policy easing, but it has the potential to allow the ECB to take a slightly less extreme tone after the summer break and could, therefore, help put a little more distance between the Euro US Dollar exchange rate (EUR/USD) and its recent test of two-year lows.
UK on Brink of Recession as Q2 GDP Data Released
Friday sees the release of the latest UK GDP growth data, covering the flash reading for the second quarter. Last week the Bank of England revised down its growth prospects for the UK, and expectations are that the quarterly figure will slip into negative territory. It might take two consecutive negative readings to count as a recession, but with confidence in the UK economy already lacking, this could serve to heap further pressure on the Pound US Dollar (GBP/USD) and Pound Euro (GBP/EUR) exchange rates.
US Dollar Forecast: Inflation Reading Could Call Fed’s Stance Into Question
Also on Friday, the US Producer Price Index for July, showing the increase in prices paid by manufacturers, will be released. This number typically feeds through to consumer price inflation, so any contraction from June’s year-on-year reading of 1.7% has the potential to raise criticism of the Federal Reserve. This week’s more hawkish than anticipated tone at the FOMC meeting may look misplaced if inflation appears to be stalling, although whether such news would be sufficient to provide any lasting support to the Pound US Dollar exchange rate (GBP/USD) at a time when the UK faces an unparalleled level of political uncertainty remains to be seen.