- Euro rallies strongly on potential breakthrough in Greek bailout talks
- EUR/GBP benefitted from poor UK manufacturing production
- USD remains softer as odds of Fed action lower
- Weaker NIESR GDP estimate dents Pound further
Pound Surges after BoE Leaves Rates Unchanged by Unanimous Vote
Despite the Bank of England (BoE) lowering its inflation forecast the Euro to Pound Sterling (EUR/GBP) exchange rate slumped sharply in the wake of today’s BoE policy meeting. As policymakers opted to leave interest rates unchanged by unanimous vote this prompted some relief amongst markets, sending the Pound (GBP) higher across the board. Consequently the EUR/GBP pairing was trending lower around 0.7873 on Thursday afternoon.
Demand for the Euro (EUR) Slows on Discouraging German Data
Confidence in the Euro (EUR) diminished somewhat on Thursday morning following a further decline in German Wholesale Prices on the year in April. Suggesting that inflationary pressure in the Eurozone’s powerhouse economy remains muted this prompted a softening of the single currency. Consequently the Euro to US Dollar (EUR/USD) exchange rate was trending lower in the region of 1.1409.
Weak UK Growth Prompts Further EUR/GBP Exchange Rate Gains
The Euro to Pound Sterling (EUR/GBP) exchange rate continued to extend its gains on Wednesday afternoon after the NIESR GDP estimate indicated a continued slowdown in growth. As the figure clocked in an an unimpressive 0.3% the chances of the Bank of England (BoE) taking a more dovish view on monetary policy seem higher. As a result the EUR/GBP pairing was trending higher around 0.7903.
Easing Greek Bailout Worries Shore up Euro (EUR) Demand
Markets took a rather more optimistic view of the Euro (EUR) in the wake of Monday’s meeting of Eurogroup finance ministers, with fears over the future of the Greek bailout easing somewhat. Ministers were revealed to have finally discussed the possibility of debt relief for the stricken Hellenic nation as German opposition to the strategy diminished. While disagreements remain amongst creditors, this nevertheless gave rise to hopes that the long-running bailout review could be signed off at the next Eurogroup meeting on the 24th of May.
This boost to the appeal of the single currency is likely to wear a little thinner as the week progresses, however, particularly without the support of significant positive Eurozone ecostats. Also of influence will be Friday’s first quarter German and Eurozone GDP reports, which could uncover further signs of slowing within the currency union. Should economic growth surprise on the upside, though, the Euro could end the week on strong form.
Weaker UK GDP Forecast to Boost Euro to Pound Sterling (EUR/GBP) Exchange Rate
Confidence in the Pound (GBP) remained generally muted at the start of the week as the ‘Brexit’ debate continued to dominate sentiment towards the softened currency. UK Industrial Production showed a smaller contraction than forecast on the year at -0.2% rather than -0.4%, seeming to indicate that referendum uncertainty had been a more limited drag on the domestic economy than thought. Nevertheless the Euro to Pound Sterling (EUR/GBP) exchange rate continued to advance, spurred higher as the corresponding Manufacturing Production figure suffered its sharpest decline in nearly two years.
Later in the day the NIESR Gross Domestic Product Estimate for April could prompt the Pound to cede further ground to rivals, with any downward momentum likely to discourage markets. As researchers at Danske Bank noted:
‘It is not unlikely that we could see a fall in the GDP estimate as UK PMIs are at three-year lows. Our main scenario is that growth will slow ahead of the UK’s EU referendum.’
While there is little realistic chance of the Bank of England (BoE) opting to alter monetary policy on Thursday, signs of weaker growth are likely to increase the dovish bias of policymakers.
US Dollar Exchange Rate Remains Softer despite Improved Business Optimism
Investors were somewhat reassured by Tuesday’s NFIB Small Business Optimism Index, which showed a stronger-than-expected uptick from 92.6 to 93.6 in April. This suggested that the US economy might be in a more robust state than implied by Friday’s weak Non-Farm Payrolls report, shoring up the US Dollar (USD). Even so the sharp decline in the odds of a June interest rate hike from the Federal Reserve continued to weigh on the appeal of the ‘Greenback’, limiting the resultant rally.
Although it is unlikely that Friday’s Advance Retail Sales or University of Michigan Confidence Index will have a material impact on the Fed’s outlook, stronger showings could lend further strength to the US Dollar. Forecasts suggest an improvement in both consumer demand and sentiment in spite of recent market turbulence, a result which could keep hopes of further interest rate hikes alive.
Current EUR, GBP, USD Exchange Rates
At the time of writing, the Euro to Pound Sterling (EUR/GBP) exchange rate was trending higher in the region of 0.7899, while the Euro to US Dollar (EUR/USD) pairing was making gains around 1.1387. Meanwhile, the Pound Sterling to US Dollar (GBP/USD) exchange rate was slumped at 1.4414.