- Euro advances – Smaller-than-expected GDP slowdown
- Pound strong on choppy trading – GBP seesaws after confidence data
- USD tumbles on poor GDP growth – Market expectations way too optimistic
- EUR GBP, EUR USD Forecast – Eurozone data light; UK and US reports to dominate
Better-than-expected Eurozone GDP helped strengthen the Euro yesterday, with EUR USD making bullish gains, although the undulating Pound managed to keep EUR GBP within opening levels.
Euro Boosted by Positive Eurozone GDP Data
Friday’s data was mostly positive for the Euro, although there were some sore points among the data. French data showed zero GDP growth in the second quarter – a more significant slowdown than was expected – and a more sluggish acceleration than predicted on the year. German retail sales also surprised on the month, unexpectedly declining -0.1%, but only slowing by -0.1% on the year, falling to 2.7% rather than the forecast 1.5%.
Eurozone gross domestic product bettered market expectations, however. The second-quarter GDP figures showed the expected slowing from 0.6% to 0.3% on the month and a better-than-expected 1.6% expansion on the year; forecasts had been for a greater decline from 1.7% to 1.5%.
As the European session drew to a close on Friday, the Euro was struggling around opening levels against the Pound, but advancing bullishly against the US Dollar.
Pound Undulates on More Unnerving Post-Brexit Data
The Pound started yesterday’s European session on a strong note, thanks to correctional trading after the release of the latest GfK Consumer Confidence survey undermined Sterling. Confidence dropped by the biggest margin in 26 years – the last time sentiment weakened so dramatically was in 1990 when the public was faced with interest rates increasing to 15%. The index fell to its lowest level in three years.
GfK’s Head of Market Dynamics, Joe Staton, explained;
‘Consumers in post-Brexit Britain are reporting higher levels of concern this month. We’ve seen a very significant drop in confidence, as is clear from the fall in each of our key measures, with the biggest decrease occurring in the outlook for the general economic situation in the next 12 months (-19 points)… However, the Index continues to remain at a relatively elevated level by historic standards. Its future trajectory depends on whether we enter a new period of damaging economic uncertainty or restore confidence by embracing a positive stance on negotiating a new deal for the UK.’
After weakening overnight (the GfK data was released at Midnight on Friday), the Pound recovered, only to fall back again later on during Friday’s European session. By the close of trade, the Pound was recovering once more and was making marginal gains on the Euro.
US Dollar Slumps as Gross Domestic Product Figures Kill Hopes of 2016 Rate Hike
Markets had been hoping for a strong rise from US GDP in the second quarter, but the final annualised expansion severely disappointed forecasts. Expected to rise from 1.1% to 2.5%, growth only increased 0.1% on previous figures. Even worse, the previous quarter’s rate of expansion was retrospectively downgraded to 0.8%.
Personal consumption figures also disappointed. They still posted a strong recovery from the previous upwardly-revised 1.6% to 4.2%, but markets had been hoping for a rise to 4.4%. The final release of the University of Michigan Confidence index for July was revised slightly higher from 89.5 to 90, but this was still -0.2 lower than the median market estimate.
According to Richard Curtin, Chief Economist responsible for the UoM survey, short-term Brexit concerns weighed surprisingly heavily on consumer confidence, but it was the Presidential election and global outlook that would keep dragging on outlook. He noted;
‘While concerns about Brexit are likely to quickly recede, weaker prospects for the economy are likely to remain. Uncertainties surrounding global economic prospects and the presidential election will keep consumers more cautious in their expectations for future economic growth. Based on the strength in personal finances and low interest rates, real consumer spending is now expected to rise by 2.6% through mid 2017.’
EUR GBP, EUR USD Forecast; UK and US Data to Dominate Exchange Rate Movements
Eurozone data is relatively quiet in the coming week, leaving the Euro to respond to developments within the UK and US.
After a quiet start to the week, Tuesday will bring the first post-Brexit Markit/CIPS construction PMI. Considering the index crashed from 52 into contraction territory, ending up with a reading of 46, investors are likely to be highly concerned ahead of this release. The Markit services and composite indexes for July fell further into contraction than expected, so there is a strong risk the construction index will weaken considerably.
The EUR USD pairing will also face volatile trading on Tuesday in the aftermath of the ISM Manufacturing index release. This is forecast to weaken from 53.2 to 52.4, which could further weaken the outlook on the US economy and therefore the US Dollar.
EUR, GBP, USD Conversion Rates
The Euro Pound (EUR GBP) exchange rate was trending in the region of 0.8416, while the Euro US Dollar (EUR USD) exchange rate was trending in the region of 1.1171 towards the close of Friday’s European session.