Higher UK Home Loans Forecast to Boost Pound (GBP) Further
Demand for the Pound (GBP) remained higher on Tuesday morning, with markets anticipating a stronger BBA Loans for House Purchase figure. Should confidence within the UK housing market be shown to have improved on the month in March the Euro to Pound Sterling (EUR/GBP) exchange rate is expected to remain on a downtrend.
As the latest US Durable Goods Orders are also forecast to show some improvement the Euro to US Dollar (EUR/USD) exchange rate was trending narrowly in the region of 1.1267 at the start of the European session.
EUR/USD Exchange Rate Trended Higher after Lower US Home Sales
After a generally positive CBI report, which showed unexpected improvement in total orders and selling prices trends, the Euro to Pound Sterling (EUR/GBP) exchange rate remained on a narrow downtrend. A disappointing US New Home Sales result, meanwhile, saw the Euro to US Dollar (EUR/USD) currency pair continue to make strong gains towards the end of Monday’s European session.
- Euro strengthened despite weaker German business sentiment
- EUR/GBP boosted with ‘Brexit’ jitters weighing down on the Pound again
- Declining odds of imminent Fed rate hike dented US Dollar
- Fed policy meeting forecast to provoke EUR/USD exchange rate volatility
Weaker IFO Sentiment Survey Failed to Dent Bullish Euro (EUR) Run
Following more dovish rhetoric from European Central Bank (ECB) President Mario Draghi, the Euro (EUR) struggled to gain any particular traction against rivals. Although markets are inclined to dismiss the possibility of further loosening measures from the ECB materialising in the near future, the single currency was also weighed down by discouraging domestic data. The April raft of Eurozone Manufacturing and Services PMIs demonstrated fresh weakness within the economy of the currency union, despite a modest improvement in Germany’s manufacturing sector.
This bearish trend was largely reversed at the start of the new week, however, as the impact of Draghi’s comments on lower interest rates faded further. The Euro continued to advance against the majority of the majors in spite of April’s German IFO Business Sentiment survey evidencing weaker sentiment than anticipated. This latest gauge suggests that, while confidence within the Eurozone’s powerhouse economy is waning, the single currency nevertheless trended higher against its softened rivals.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Retreated after ‘Brexit’ Worries Returned
Despite poor UK data throughout the last week, the Pound (GBP) trended higher on Friday in response to the latest developments in the ongoing ‘Brexit’ debate. With the polls appearing to suggest that the ‘Remain’ camp had strengthened its lead over ‘Leave’, confidence was bolstered further by comments from US President Barrack Obama. Expressing a desire for the country to stay inside the European Union, Obama stressed that a new trade deal between the US and UK could take up to a decade to negotiate in the event of a ‘Brexit’. As investors saw this high-profile intervention potentially swaying undecided voters towards remaining a part of the EU, the Euro to Pound Sterling (EUR/GBP) exchange rate slumped to a one-month low of 0.7753.
Some of this optimistic sentiment wore off on Monday morning, however, as markets anticipated softness from the latest report on the UK’s business sector from the CBI. Later in the week Sterling could cede further ground if the first quarter UK GDP is found to have printed on the downside, suggesting increasing weakness within the domestic economy.
US Dollar (USD) Forecast to Hold Bearish Trend ahead of Dovish FOMC Meeting
Demand for the US Dollar (USD) also remained limited at the start of the week, after the chances of an imminent move from the Fed were dented further by Friday’s discouraging Manufacturing PMI. While expectations had been for a modest expansion in the manufacturing sector the index instead demonstrated a sharp slowing to fall from 51.5 to 50.8. With confidence in the outlook of the world’s largest economy faltering further, this saw the Euro to US Dollar (EUR/USD) exchange rate return to an uptrend.
The appeal of the ‘Greenback’ was somewhat muted ahead of the March New Home Sales report, particularly after recent data pointed towards a greater downturn in the US housing market. Should home sales be shown to have slowed the EUR/USD currency pair is likely to extend its recent gains further, particularly as expectations are not high for Wednesday’s Federal Open Market Committee (FOMC) policy meeting. As analysts from Rabobank noted:
‘We expect the Fed to remain on hold this month, but we stick to our call of two hikes this year, most likely one in June and another in December. However, if the slowdown continues well into Q2 this could delay the first hike of this year to September.’
Current EUR, GBP, USD Exchange Rates
At the time of writing, the Euro to Pound Sterling (EUR/GBP) exchange rate was trending higher at 0.7802, while the Euro to US Dollar (EUR/USD) pairing was making gains in the region of 1.1254. Meanwhile, the Pound Sterling to US Dollar (GBP/USD) exchange rate was trending narrowly around 1.4426.