- Euro Exchange Rates Weak – Yields on German 10-year bonds turned negative
- UK Pound Forecast to Struggle – ‘Brexit’ nerves cause implied volatility to reach record-highs
- US Dollar Exchange Rates Predicted to Climb – Safe-haven demand remains supportive
- Damp market sentiment predicted to continue – ‘Brexit’ volatility reduces risk-appetite
Euro Pound Exchange Rate Lower on Shocking MP Murder
The Euro Pound exchange rate declined on Friday as GBP firmed in response to Thursday’s tragic and shocking news.
The murder of MP Jo Cox sent shockwaves through the UK and has resulted in the temporary suspension of EU referendum campaigning.
With some analysts believing that the development could result in increased support for the ‘Remain’ campaign, the EUR/GBP exchange rate dropped to 0.7863.
The Euro US Dollar exchange rate, meanwhile, dipped as the weekend approached and investors looked ahead to today’s US Housing Starts and Building Permits.
(Previously updated 16/06/2016)
EUR Gains on GBP, USD after FOMC Announcement
With the Fed leaving interest rates on hold at June’s policy gathering and issuing a rather cautious policy statement, the US Dollar fell – driving the Euro higher in the process.
Both the Euro Pound and Euro US Dollar exchange rates gained in the wake of the announcement, with EUR/GBP achieving a high of 0.7942.
The Financial Times observed: ‘The median of Fed forecasts suggests policymakers are still expecting two interest rate increases this year, but rate forecasts for 2017 and 2018 have been pared back, as has the Fed’s estimate of the longer-run policy rate.’
Thursday’s UK retail sales report inspired EUR/GBP losses with the pace of consumer spending exceeding forecasts.
Although the Bank of England (BoE) kept rates unchanged, the publications of minutes caused the Pound to strengthen. This was because policymakers highlighted the global risks of a ‘Brexit’ which is thought to be supportive of the ‘Remain’ campaign.
Meanwhile the Eurozone’s final CPI data was positively revised on the month and left on hold on the year.
(Previously updated 16:45 16/06/2016)
Euro Pound Exchange Rate Falls as UK Average Earnings Impress
Unexpectedly upbeat UK employment figures sent the Euro to Pound exchange rate trending higher during the European session.
Instead of holding at 5.1%, the UK’s unemployment rate dropped to a low of 5.0% in the three months through April.
Meanwhile, average earnings including bonuses printed at 2.0%, considerably better than the 1.7% result forecast.
Markit economist Chris Williamson said of the result: ‘More recent survey data suggest that employers’ demand for staff has cooled in more recent months amid worries about Brexit and a slowing economy, suggesting the good news should be treated with some caution.’
The jobs data sent the Pound trending higher against both the Euro and US Dollar, with the EUR/GBP exchange rate falling to an intraday low of 0.7891
However, if the Federal Open Market Committee’s (FOMC) upcoming policy statement is particularly dovish in tone and drives the US Dollar lower, the Euro could be boosted across the board.
It’s likely that the Fed will also mention the UK’s upcoming EU referendum and it will be interesting to see what they have to say about the situation.
(Previously updated 08:00 15/06/2016)
During Tuesday’s European session the Euro Pound and Euro US Dollar exchange rates both declined. The depreciation was initiated by news of aggressive corporate bond purchases by the European Central Bank (ECB). Safe-haven demand also pushed the US Dollar higher, but any sign of dovishness from the Federal Open Market Committee (FOMC) may see the Dollar pegged back from recent highs.
Euro (EUR) Exchange Rate Forecast to Struggle as Yields from Bonds Continue to Fall
One major issue with the ECB’s latest corporate bond purchases is the fact that bond yields from developed markets are falling in the face of ‘Brexit’ concerns.
German 10-year bonds saw yields fall below zero for the first time, causing many to fear that the ECB’s asset purchase programme will have a reduced impact and will likely require extension in order for inflation to be pushed up towards target. Should ECB QE have a muted impact policymakers will likely consider further cuts to interest rates into negative territory.
Today’s domestic data is unlikely to be impactful giving its low-weighting, with market sentiment and US Dollar strength more likely to cause EUR volatility.
Pound Sterling (GBP) Exchange Rate Predicted to Continue to Decline on ‘Brexit’ Jitters
Although there will be a number of domestic data publications today, the UK Pound is predicted to continue to see volatility in response to EU referendum updates.
Yesterday saw the UK unit crash versus its peers after The Sun newspaper endorsed the ‘Leave’ campaign. Stagnant annual inflation in May also limited the appeal of Sterling.
Today’s domestic data may still be impactful, however, with traders likely to focus on Average Weekly Earnings to determine if there was any correlation with the lack of inflationary growth.
Implied Sterling volatility has reached a record-high as fickle traders react to divergent opinion poll results. Any sign that the ‘Remain’ campaign has recovered momentum, therefore, should cause significant GBP gains irrespective of domestic data results.
US Dollar (USD) Exchange Rate Forecast to Advance on Damp Market Sentiment
With the UK’s EU referendum causing volatility to permeate markets, there is a high chance that sentiment will remain damp during today’s session.
Should this be the case, the US Dollar is likely to climb as markets have already priced in a 0% chance that the Federal Reserve will alter monetary policy at this time.
There is still potential for the Fed rate decision to cause US Dollar volatility, however, with Chairwoman Janet Yellen leading the accompanying press conference.
If Yellen gives hawkish clues regarding policy outlook, and refrains from parroting tired rhetoric, such as the need for patience, the USD will rally versus its peers.
During Tuesday’s European session, the EUR/GBP exchange rate was trending within the range of 0.7908 to 0.7973, whilst EUR/USD was trending within the range of 1.1187 to 1.1299.