IMF Warns of ‘Brexit’ Risks, Dovish on Global Outlook
As expected, the latest remarks from the International Monetary Fund (IMF) caused currency market fluctuation on Tuesday, with the Euro to Pound Sterling and Euro to US Dollar exchange rates both experiencing movement.
The Euro was able to recoup earlier losses against the Pound and firm against the US Dollar as the IMF presented a dovish outlook for global growth and warned of the potential risks posed by a ‘Brexit’.
As the Federal Reserve has indicated that the global economy will have an impact on interest rate adjustments, the commentary weighed on expectations for higher US borrowing costs and limited US Dollar demand.
However, if this week’s US CPI data shows the uptick in inflation forecast by economists, the US Dollar may rebound against peers like the Euro and Pound.
UK CPI Beats Forecasts, Euro Declines Vs. Pound Sterling
As the European session progressed, the the Euro to Pound Sterling exchange rate declined as the UK published better-than-forecast inflation data.
UK non-core CPI increased by 0.4% on the month in March, resulting in an annual figure of 0.5%.
UK’s inflation rate rose from 0.3% in February to 0.5% in March, Office for National Statistics says https://t.co/IHzSKdC55n
— BBC Breaking News (@BBCBreaking) 12 April 2016
As higher consumer price pressures may encourage the Bank of England (BoE) to be more hawkish in regards to interest rate hikes, the Pound gained on its rivals following the report’s release.
The EUR/GBP exchange rate hit a low of 0.8000
German Inflation Data Leaves EUR/GBP Static
The Euro to Pound Sterling (EUR/GBP) exchange rate was left trending in a narrow range as Germany’s final inflation figures for March printed as previously forecast.
The monthly figure of 0.8% and annual result of 0.3% were as expected, giving the Euro little reason to bounce higher against the Pound ahead of today’s more influential UK inflation data.
As it stands, EUR/GBP is trading in the region of 0.8011.
Will the Euro (EUR) Extend Losses Following UK Inflation Data?
Ahead of the publication of the UK’s latest inflation data, the Euro to Pound Sterling (EUR/GBP) exchange rate was trending in the region of 0.8012 – down 0.7% on the day’s opening levels.
Whether or not the pairing is able to recoup losses largely depends on how Tuesday’s UK inflation data prints.
An uptick in consumer price pressures would be Sterling-supportive and could send the British currency higher against the majority of its peers.
Conversely, if inflation fails to pick up as expected, it will weigh on both Bank of England (BoE) interest rate hike expectations and demand for GBP.
Other factors likely to impact the EUR/GBP exchange rate tomorrow include Germany’s final inflation figures for March.
The Euro to Pound Sterling (EUR/GBP) and Euro to US Dollar (EUR/USD) exchange rates have both been trending in negative ranges today, while elsewhere the single currency has recorded more notable losses against its peers.
Eurozone Economic News: Greek Concerns Return
The Euro’s (EUR) weakness against its competitors today is potentially a symptom of the simple lack of impactful domestic data coming out of the Eurozone; this has allowed the long-dormant issue of Greece’s relationship with the International Monetary Fund (IMF) to rise again in the public eye and devalue the Euro, like last week.
The most recent detrimental development has come from Alexis Tsipras. The Greek PM has repeatedly tried to assert his view that the IMF intends to keep Greece near default on its debts as a way of ensuring that harsher bailout requirements are met.
The actual grounds for these claims is fairly nebulous, and as Athens University Professor of European Politics and Economy George Pagoulatos says, ‘Each time Tsipras is going to have to compromise, he needs to create an external enemy’.
Elsewhere, a poor outcome from Italy’s industrial production figures for February has cemented the Euro’s downtrend.
Losses have included -0.6% against the Polish Zloty (EUR/PLN) and -0.7% against the Pound Sterling (EUR/GBP), as well as a slight decline against the US Dollar (EUR/USD).
Whether or not the common currency is able to stage a rebound against the Pound remains to be seen, although many industry experts still see Sterling’s risks as being weighted to the downside.
Some investors don’t envisage the Pound being able to gain any serious traction ahead of the June 23rd referendum. That being said, if UK data starts to pick up or Eurozone concerns mount considerably Sterling could continue pushing away from its recent 19-month low.
Pound Sterling (GBP) Rallies Today while US Dollar (USD) makes Fractured Gains
On the other side of the equation, the Pound Sterling (GBP) has advanced notably against its peers, potentially due to recent developments in the continuing UK tax scandal. Although PM David Cameron was the initial focus of scrutiny, the effect of widening public mistrust of political figures has led to a number of officials publishing their tax returns.
Although very much early days, there is already talk of morally or legally obliging high-profile figures to publish their tax returns, something that would ostensibly restore some of the lost trust in figures running the country.
Sterling gains have included 0.6% against the US Dollar (GBP/USD), 0.7% against the Euro (GBP/EUR) and 0.9% against the Swiss Franc (GBP/CHF).
The US Dollar’s (USD) movement has been more mixed today, with gains of 0.3% against the Swiss Franc (USD/CHF) being balanced by a loss of -0.5% against the Pound Sterling (USD/GBP) and a narrow trending against the Euro (USD/EUR).
With no recent US data to refer to, investors in the ‘Buck’ may have lost their interest in the currency due to recent disappointing results for China’s inflation rate and PPI outcome on the year in March. Fed Chair Janet Yellen has recently signalled that US monetary policy will be heavily impacted by global conditions, so weak data from China will likely lower expectations of a US rate hike in the near future.
Future EUR, GBP, USD Forecast: IMF Outlook could Shift Current Currency Positions
The near-future is set to bring only impactful US data, in the form of speeches from Fed officials William Dudley and Robert Kaplan, therefore it may be up to tomorrow’s IMF announcements to properly begin the week for all three currencies.
The IMF is due to make new predictions for global growth tomorrow and at the time of writing, a number of economists were pessimistically predicting a broad cutting of growth forecasts across the board.
Current EUR, GBP, USD Exchange Rates
The Euro to Pound Sterling (EUR/GBP) exchange rate was trending in the region of 0.8018, while the Pound Sterling to Euro (GBP/EUR) exchange rate was trending in the region of 1.2473.
The Euro to US Dollar (EUR/USD) exchange rate was trending in the region of 1.1383, with the US Dollar to Euro (USD/EUR) exchange rate trending in the region of 0.8786.
The Pound Sterling to US Dollar (GBP/USD) exchange rate was trending in the region of 1.4196 and the US Dollar to Pound Sterling (USD/GBP) exchange rate was trending in the region of 0.7045 today.