- Euro (EUR) exchange rates surge despite mixed domestic data
- Pound Sterling (GBP) exchange rates fluctuate following damp consumer confidence
- US Dollar (USD) exchange rates extend losses after Q1 GDP underwhelmed
- Euro forecast to struggle on heightened expectation of additional European Central Bank stimulus
Euro (EUR) Exchange Rates Rally on Soft US Dollar
The single currency has strengthened versus the majority of its closest currency rivals, irrespective of disappointing domestic ecostats. The appreciation is the result of US Dollar weakness after yesterday’s disappointing North American Gross Domestic Product report for the first quarter provoked speculation of long-term delays to a Federal Reserve cash rate increase.
There is potential for Euro gains to be pegged back as the day progresses, however, once traders digest the less-than-ideal domestic data. Of particular disappointment was Eurozone Consumer Prices, which came in at -0.2% on the year in April, missing the median market forecast -0.1%.
This, coupled with yesterday’s disappointing German inflation data, has caused many to speculate that the European Central Bank (ECB) will have no choice but to ease policy further in the hopes of stoking inflationary growth.
Aside from US Dollar weakness propping up the Euro, there have been some positive domestic data publications. Eurozone Unemployment fell further-than-expected in March, with the result showing 10.2% unemployed in the Euro-area. Additionally, the advanced reading for first quarter Eurozone Gross Domestic Product bettered expectations on both a quarterly and annual basis.
‘We expect the economic recovery to proceed at a modest pace going forward,’ said economist Nick Kounis. ‘However, underlying inflationary pressures are likely to remain very weak given the slack in the economy and subdued wage growth.’
US Dollar (USD) Exchange Rates Extend Decline on Reduced Fed Rate Hike Bets
In the aftermath of the Federal Open Market Committee (FOMC) interest rate decision, in which policymakers opted to hold the benchmark interest rate, the US Dollar dived versus its major peers. Whilst the FOMC was expected to hold the base rate, hawks were hoping that the accompanying press conference would shed some light on the potential for a June hike.
However, Fed Chairwoman Janet Yellen once again called for patience, using tired rhetoric that did little to encourage investor sentiment. Yellen did intimate, however, that policy will be more data driven now that external risks have abated somewhat.
With Fed policy becoming more data dependent, the US Dollar extended losses following a weaker-than-expected GDP report. This prompted speculation that the Fed would hold off from hiking rates for a considerable time to come. In the immediate aftermath of the soft first quarter GDP data, which saw just 0.4% quarterly growth, futures indicated that the chance of a June rate hike dropped from 21% to just 12%.
Pound Sterling (GBP) Exchange Rates Mixed as ‘Brexit’ Uncertainty Weighs on Consumer Confidence
In recent weeks the British unit has outperformed all of its closest rivals, rallying significantly irrespective of domestic data. The appreciation was the result of a relief rally after concerns regarding ‘Brexit’ eased.
Opinion polls have shown a lead for the ‘Remain’ campaign, while Bloomberg only rates the chance of a Brexit at 21%. However, there have been opinion polls that paint a very different picture, which is perhaps having a bigger detrimental impact on British consumers rather than traders.
April’s GfK Consumer Confidence Survey was forecast to drop from 0 to -1, but the actual result showed confidence fell further to -3, which is the lowest level in 15-months.
‘Mixed messages about a post-Brexit world and the ongoing Eurozone crisis are casting a cloud over our economy,’ said GfK’s Joe Staton. ‘Against this backdrop, even faith in our personal economic fortunes has taken a battering contributing to the overall fall in the numbers.’
The Euro to Pound Sterling (EUR/GBP) exchange rate was trending within the range of 0.7763 to 0.7838.
The Euro to US Dollar (EUR/USD) exchange rate was trending within the range of 1.1354 to 1.1460 during Friday’s European session.