- EUR Static – Policy decision having muted impact
- GBP Edges Higher – Positive services growth
- USD Trending Lower Today – US unemployment figures disappoint
- Euro Climbs vs. GBP, USD – Ends week trending higher
Euro Broadly Stronger as US Dollar Plummets
With the US Non-Farm Payrolls report disappointing forecasts, the US Dollar broadly softened.
The downtrend in the ‘Greenback’ inspired broad-based Euro gains and helped the EUR/GBP exchange rate climb to a high of 0.7812, up 0.7%.
The EUR/USD exchange rate, meanwhile, surged 1.6%, briefly brushing a best rate of 1.1134.
EUR/GBP Exchange Rate Ticks Lower after UK Services Output Trumped Expectations
The Euro to Pound Sterling (EUR/GBP) exchange rate edged fractionally lower by around -0.2% in the early stages of Friday’s European session.
Volatility following yesterday’s European Central Bank (ECB) interest rate decision was the most muted since President Mario Draghi announced the bond-purchasing program. This is partly because ECB policymakers kept rates unchanged, but also due to the fact that there are far more important economic events overshadowing policy decisions at this time.
One of the major factors weighing on trader optimism is the UK’s EU referendum. Whilst fears of a ‘Brexit’ have mostly negatively impacted the UK Pound, the Euro has also suffered. Most analysts agree that the European Union (EU) stands to lose out the most from a ‘Brexit’ amid fears of contagious appetite for independence.
Federal Reserve rate hike uncertainty has also weighed on ECB policy decisions. Should today’s US jobs reports print positively, the increased likelihood of a near-term Fed rate hike would likely cause the Euro to sink. The ECB will be more reluctant to ease policy further in the event of a Fed rate hike, however, amid concerns of widening divergence. Additionally, a Fed rate hike would devalue the Euro which could mean that quantitative easing has a more muted impact.
‘The ECB isn’t really a live issue,’ said London based economist Ian Gunner. ‘They’ve done what they’ve done and nothing else is planned by them for the foreseeable future. The focus is now elsewhere, like on the Fed and also Brexit.’
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7725.
Pound Sterling (GBP) Recovering as Strong Service PMI Growth Counters Construction and Manufacturing Weakness
The British Pound, meanwhile, edged slightly higher versus a number of its major peers after services growth bettered expectations. Services accounts for the largest portion of British gross domestic product, so the positive score could negate the negative impact from weak construction and manufacturing growth.
May’s UK Services PMI was forecast to tick fractionally higher from 52.3 to 52.5, but the actual result reached 53.5. Chris Williamson, Chief Economist at Markit, stated;
‘The PMI surveys show that the pace of economic growth remained subdued in May, as ‘Brexit’ worries exacerbated existing headwinds. The data so far indicate that the second quarter is likely to see the economy grow by just 0.2%. Growth has collapsed in manufacturing and construction, leaving the economy dependent on the service sector to sustain the upturn, though even here the pace of expansion has remained frustratingly weak so far this year. Trends in employment and order books also deteriorated further across the economy in May, hinting at the possibility that the pace of growth could weaken again in June especially as the EU referendum draws closer.’
May’s Composite PMI also bettered expectations but this did little to spur confidence in second-quarter British growth.
The Euro to Pound Sterling (EUR/GBP) exchange rate was trending within the range of 0.7718 to 0.7744.
EUR/USD Exchange Rate Trending Narrowly despite Weak Eurozone Retail Sales
The Euro to US Dollar (EUR/USD) exchange rate was trending within a limited range on Friday morning.
In addition to ‘Brexit’ and Fed rate hike uncertainty weighing on demand for the common currency, weak domestic data was also negatively impactful. Italian, French and German Services and Composite PMIs all failed to meet with expected growth. May’s Italian services output unexpectedly contracted.
Eurozone Retail Sales data also disappointed, further fuelling the Euro downtrend. On the year, Retail Sales saw just 1.4% growth in April which was well below expectations of a 2.1% increase in sales. On the month, April’s Eurozone Retail Sales stagnated despite predictions of 0.4% growth.
The result showed that the boost predicted from strengthening consumer sentiment by analysts at Danske Bank had failed to materialise:
‘We expect an increase of 0.6%, driven by rising consumer confidence, which was released this week together with our expectation of a declining unemployment rate. Although March saw a monthly decline of 0.5%, witnessing the high volatility we expect the trend in retail sales to remain positive throughout 2016.’
The Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.1146.
The US Dollar, meanwhile, is trending statically as traders await key labour market data. Since Federal Reserve Chairwoman Janet Yellen stated that it was now ‘appropriate’ to increase the benchmark interest rate traders predicted that Fed policy outlook will become increasingly data dependent.
EUR/GBP, EUR/USD Exchange Rate Forecast: US Non-Farm Payrolls to Provoke Volatility
Today’s labour market data will likely provoke significant USD volatility, therefore. May’s Unemployment Rate is forecast to drop from 5.0% to 4.9%, whilst May’s Change in Non-Farm Payrolls is expected to show 160,000 newly employed.
Disappointing results will likely see the EUR/USD exchange rate advance amid concerns of long-term delays to a Fed rate hike. Most analysts agree, however, that Federal Open Market Committee (FOMC) Policymakers will be looking far beyond data results with the UK’s EU referendum having potential to shake up markets significantly.
The Euro to US Dollar (EUR/USD) exchange rate was trending within the range of 1.1137 to 1.1160 during Friday’s European session.
