Forexpros – The pound rose to a five-week high against the U.S. dollar on Friday, as investor confidence was boosted by expectations that the European Central Bank and euro zone leaders are about to step up measures to tackle the region’s debt crisis.
GBP/USD hit 1.5766 on Friday, the pair’s highest since June 20; the pair subsequently consolidated at 1.5743 by close of trade, up 0.77% on the week.
Cable is likely to find support at 1.5665, Friday’s low and resistance at 1.5776, the high of June 20.
Market sentiment was buoyed by reports that ECB President Mario Draghi is to meet with German central-bank head Jens Weidmann in the coming days to discuss steps to contain the debt crisis, including the purchase of Spanish and Italian bonds.
Markets rallied on Thursday, after Draghi said the ECB will do whatever is necessary to preserve the euro.
Adding to the positive tone, German Chancellor Angela Merkel and French President Fran?ois Hollande vowed to defend the euro in a joint statement on Friday and said that they are “deeply committed to the integrity of the euro zone.”
The comments came after the yield on Spanish 10-year bonds surged to a euro-era high of 7.7% on Wednesday, fuelling fears that the country would need a full-scale sovereign bailout, in addition to the rescue package agreed for its banks.
Also Friday, preliminary data showed that U.S. economic growth came in broadly in line with expectations in the second quarter, tempering expectations for another round of easing measures from the Federal Reserve at its policy meeting next week.
The Commerce Department said U.S. gross domestic product expanded by 1.5% in the three months to June, after growing by an upwardly revised 2.0% in the first quarter.
In the U.K., data on Wednesday showed that the economy contracted by 0.7% in the second quarter, far more than the 0.2% contraction economists had forecast, extending Britain’s recession into a third quarter.
The weak data boosted expectations for a further round of easing by the Bank of England and fuelled fears that the U.K.’s triple A sovereign rating could be downgraded.
In the week ahead, investors will continue to keep a close eye on developments in the euro zone, as well as monetary policy decisions by the Federal Reserve, the ECB and the BoE.
In addition, Friday’s data on U.S. non-farm payrolls will be highly anticipated as market participants attempt to gauge the strength of the country’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 30
The U.K. is to release official data on net lending to individuals, as well as industry data on retail sales, a leading indicator of consumer spending.
Tuesday, July 31
The U.K. is to publish a report on consumer confidence, an important indicator of consumer spending.
The U.S. is to publish official data on personal consumption expenditures price inflation, as well as on employment costs and personal spending. The country is also to release the Standard & Poor’s / Case-Shiller house price inflation report, followed by Chicago’s purchasing managers’ index and industry data on consumer confidence.
Wednesday, August 1
The U.K. is to release two industry reports on house price inflation, followed by data on manufacturing sector activity, a key indicator of economic health.
The U.S. is to produce data on non-farm employment change, as well as a report on crude oil stockpiles. The Institute for Supply Management is to produce a report on manufacturing activity.
In addition, the Federal Reserve is to announce its benchmark interest rate. The announcement is to be accompanied by the central bank’s rate statement, which discusses the factors affecting the bank’s policy decision and the economic outlook.
Thursday, August 2
The U.K. is to publish a report on construction sector activity, while the BoE is to announce its benchmark interest rate, as well as any changes to the size of its asset purchase program.
Later Thursday, U.S. is to release government data on initial jobless claims and factory orders, a leading indicator of production.
Friday, August 3
The U.K. is to produce data on service sector activity, a leading indicator of economic health.
The U.S. is to round up the week with government data on non-farm employment change and the country’s unemployment rate, followed by official data on average hourly earnings, as well as an ISM report on non-manufacturing activity.
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