Forexpros – The pound jumped more than 1% against the U.S. dollar on Friday, after European leaders agreed on measures to ease concerns over the sovereign debt crisis in the euro zone, sparking a risk-on rally.
GBP/USD hit 1.5484 on Thursday, the pair’s lowest since June 15; the pair subsequently consolidated at 1.5703 by close of trade on Friday, up 0.87% on the week.
Cable is likely to find support at 1.5484, Thursday’s low and resistance at 1.5776, the high of June 20 and a one-month high.
Markets rallied after European Union leaders agreed to use the euro zone’s bailout funds to support struggling banks directly, without adding to national debt and also agreed to set up a joint banking supervisory body for the euro area.
In addition to the direct recapitalization of Spain’s banks, euro zone bailout funds will be able to purchase government debt in order to keep down borrowing costs.
Announcing the deal following a two-day summit in Brussels, EU Council President Herman Van Rompuy called the accord a “breakthrough” and said it would break the “vicious circle” between banks and national governments.
After the announcement, the yield on Spanish 10-year bonds fell back to 6.32%, after rising to the critical 7% threshold on Thursday, while the yield on Italian 10-year bonds eased back below 6%.
In the U.K., official data on Thursday confirmed that the economy contracted by 0.3% in the three months to March, but the contraction in the previous quarter was revised up to 0.4%, from a preliminary estimate of 0.3%.
The weak data reinforced expectations that the Bank of England may implement a third round of quantitative easing measures to shore up growth.
Earlier in the week, BoE Governor Mervyn King said an interest rate cut would be less effective in stimulating the economy than more quantitative easing.
In testimony to Parliament’s Treasury Committee on Tuesday, Governor King said the outlook for the U.K. economy had deteriorated in recent weeks as a result of the ongoing debt crisis in the euro zone.
Sterling was lower against the euro on Friday, with EUR/GBP gaining 0.56% to settle at 0.8061.
In the week ahead, investors will be closely watching the outcome of rate setting meetings by the BoE and the European Central Bank.
In the U.S, markets will be closed on Wednesday for the Independence Day holiday, while the country is to release official data on nonfarm payrolls report on Friday, after disappointing results in June sparked concerns over the strength of the U.S. economic recovery.
Ahead of the coming week, Forexpros has compiled a list of these and other significant events likely to affect the markets.
Monday, July 2
The U.K. is to release data on manufacturing activity, a leading indicator of economic health.
In the U.S., the Institute for Supply Management is to release a report on activity in the manufacturing sector.
Tuesday, July 3
The U.K. is to release industry data on house price inflation, followed by a report on construction sector activity. In addition, the BoE is to publish data on net lending to individuals.
Later in the day, the U.S. is to publish official data on factory orders, a leading indicator of production.
Wednesday, July 4
The U.K. is to produce a report on service sector activity, a leading indicator of economic health.
Markets in the U.S. are to remain closed for the Independence Day holiday.
Thursday, July 5
In the U.K., the BoE is to announce its benchmark interest rate and any changes to the size of the central bank’s asset purchase program.
The U.S. is to publish a report by payroll processing firm ADP on non-farm employment change, followed by government data on unemployment claims. The country is also to release an ISM report on service sector growth, as well as government data on crude oil stockpiles.
Friday, July 6
The U.K. is to publish official data on producer price inflation, a leading indicator of consumer inflation.
The U.S. is to round up the week with official data on non-farm employment change and the unemployment rate, as well as data on average hourly earnings, an important indicator of consumer inflation.
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