Strong German business surveys are boosting EUR GBP and EUR USD exchange rates, while the Pound and US Dollar are softened by low liquidity.
- EUR GBP, EUR USD exchange rates advance – German business sentiment improves
- Ifo surveys show rising German confidence – Business expectations remain muted
- Confederation of British Industry report mixed – Companies worried over immigration restrictions
- EUR GBP, EUR USD exchange rates – Wednesday forecast to see market volatility pick up
Sentiment could remain the key driver of exchange rates over the coming days, with economic data in short supply until Wednesday.
EUR GBP Gains Extend as OBR Forecasts Higher Borrowing for Rest of Fiscal Year
Update, 16.40, 21/12/2016; EUR GBP exchange rates have extended their gains today, after the Office for Budget Responsibility (OBR) warned that government borrowing is expected to rise. An increase in central government spending, coupled with falling corporation tax and stamp duty land tax could see deficits for the final four months of the 2016-17 fiscal year higher than twelve months ago. The OBR points out that the deficit for the entire fiscal year is still likely to have fallen year-on-year, but investors will not be happy that it looks like Chancellor is set to overshoot targets be even more than predicted.
Further Downbeat ECB QE Comments Boost Euro on Hopes of Tapering
Update; Ilmars Rimsevics, head of the Latvian central bank and member of the European Central Bank’s (ECB) Governing Council, has today expressed his disappointment at the effect of quantitative easing. Although he noted that QE had stabilised the Eurozone economy, he claimed it had failed to boost spending. As the third ECB policymaker in recent days to express disappointment in the effectiveness of the programme, Remsevics has boosted the Euro on trader hopes QE may be wound down over the coming year.
Euro Pound Edges Higher, Euro US Dollar Slumps as Eurogroup Ponder Decision on Greek Debt Relief
Update; Eurogroup officials may decide to reinstate the debt relief measures suspended in the wake of the Greek government’s decision to award a bonus Christmas pay out to struggling pensioners. Creditors initially halted the plans after Athens made the unapproved measure, but Greek officials are confident that Eurogroup will rule the recent spending does not conflict with the targets stipulated under the bailout agreement. The measures are aimed at helping those hit hardest by austerity measures imposed by creditors.
Euro Soft as Italian Government Prepares Bank Bailout Package
Update; The clock is ticking for Italian bank Monte dei Paschi, which has just ten days to raise €5 billion in capital from private investors. In perhaps a sign that the government has little confidence in the ability of the bank to succeed, new Italian Prime Minister Paolo Gentiloni has convened a meeting of the cabinet with the intention of requesting Parliament approves a €20 billion rescue package for Italy’s failing banks. EUR GBP and EUR USD exchange rates are edging lower today.
EUR GBP, EUR USD Exchange Rates Advance on Strong German Business Sentiment Scores
The latest German Ifo sentiment surveys have largely beaten expectations, helping the Euro Pound and Euro US Dollar exchange rates to advance today.
Business climate rose from 110.4 to 111.0, above forecasts of a 0.2 rise, while current assessment scores rose one point to 116.6 instead of 0.3 to 115.9. Somewhat restraining further Euro advances is the expectations score, which only climbed ten basis points to 105.6 and still lags behind the other measures. Considering mixed German data weighed on the latest Eurozone PMIs, markets would have been hoping for a stronger outlook on the future.
Also undermining the Euro is the news that struggling Italian bank Monte dei Paschi is set to launch its cash call for private investors soon. The bank needs to raise €5 billion in order to stave off state bailout or collapse, unsettling the markets. Shares in the bank have plummeted -8.5% since opening, triggering an automatic suspension.
Pound, US Dollar Slip against Euro in Quiet Trading Conditions
An empty UK data calendar has kept the Pound rudderless today.
The latest Confederation for British Industry (CBI) data has shown a mixed picture for UK businesses heading into 2017. Two out of five firms expect to recruit more staff next year, while hiring staff for permanent roles will continue to rise at a faster pace than for part-time roles.
At the same time, companies remained uncertain about the future. Half of businesses polled were worried about the availability of skilled immigrant workers going forwards. CBI Deputy Director General Josh Hardie commented;
‘This year’s survey does show a greater sense of concern about the UK’s long-term attractiveness as a place to create jobs. Getting our industrial strategy right and understanding what the UK’s future relationship with the EU will be will help ensure that this worry does not negatively impact the future performance of the labour market.’
The US Dollar, meanwhile, is soft ahead of the day’s only data releases; the Markit PMIs for December.
EUR GBP, EUR USD Exchange Rate Forecast; Thin Market Trading to Persist Until Wednesday
Only the US Markit services and composite PMIs are left to be released today; these are not as influential as the ISM variants, but in the absence of other data could provoke some US Dollar volatility.
Tomorrow is set to be a slow day as well, with only low-impact ecostats on the calendar all round.
However, trading volatility could pick up on Wednesday thanks to more numerous publications, although with only Eurozone consumer confidence due from the commodity bloc, EUR GBP and EUR USD exchange rate movement will be largely reactionary.
The UK releases its next round of public sector borrowing figures on Wednesday. Last month’s reports showed that October’s deficits had narrowed significantly, but investors were more focussed on the fact that overall borrowing was still set to largely overshoot targets. Therefore, another serious improvement is likely to be needed if investors are to respond positively to the data.
The US will release data covering existing home sales for November. These are predicted to have declined -1.8% on the month to 5.5 million.