- Euro strengthened on improved French GDP data
- EUR/USD benefitted from disappointing US growth figures
- Weaker UK confidence dented Pound Sterling
- Eurozone inflation failed to provoke Euro volatility
Euro (EUR) Extended Gains despite Weak Eurozone Inflation
Despite a disappointing Eurozone Consumer Price Index the Euro (EUR) remained on stronger form against rivals on Friday. Investors were encouraged by the news that the Eurozone GDP and Unemployment Rate had bettered expectation, allowing the Euro to Pound Sterling (EUR/GBP) exchange rate to trend higher in the region of 0.7822.
Euro (EUR) Exchange Rate Trended Higher after French GDP Bettered Forecast
While German the unemployment change was shown to have unexpectedly fallen in April, this was not enough to keep the Euro (EUR) on a bullish trend for long. Sentiment towards the single currency was hampered by worrying developments in the latest round of talks over the Greek bailout. Creditors appeared unable to finalise an agreement with the Hellenic nation over further reforms. As substantial debt repayments loom in the summer, this latest delay in releasing the next tranche of bailout funds has naturally reignited worries over the outlook of the Greek economy.
However, the Euro strengthened on Friday morning after France revealed stronger-than-expected growth in its first quarter GDP. Printing at 0.5% rather than the forecast 0.4%, this raised hopes that the currency union as a whole experienced more robust growth at the start of 2016, as Derek Halpenny of MUFG noted:
‘That means the euro-zone data, released later this morning may also now come in stronger than the expected 0.4% gain. This will no doubt be used by ECB Council members as evidence that the monetary stance adopted by the ECB is helping to lift real GDP growth.’
Some of this bullishness could be muted if the latest Eurozone Consumer Price Index indicates a weakening in inflationary pressure. As German inflation fell back from 0.3% to 0.1% on the year in April the outlook for the wider currency union does not look especially encouraging. Given the European Central Bank’s (ECB) targets for inflation another disappointment here could prompt talk of more imminent monetary loosening.
Slowing US GDP Weighed on US Dollar (USD) Exchange Rate
Demand for the US Dollar (USD), on the other hand, slumped sharply in response to the first quarter US GDP report. The world’s largest economy was found to have posted growth of just 0.5% on the year, suggesting that slowdown pressures have been more keenly felt than expected. This poor showing seemed to take the prospect of a June interest rate hike from the Fed off the table, in spite of the Federal Open Market Committee (FOMC) having left the door open for such a move at its April meeting.
Consequently the ‘Greenback’ is likely to remain on a weaker footing going into the weekend, particularly if the latest Personal Consumption Expenditure Core figure proves equally discouraging. The Fed’s primary gauge of inflation is forecast to have weakened from 1.7% to 1.5% on the year in March, another sign of slowness that could push the US Dollar further down across the board.
Pound Sterling (GBP) Demand Weakens on Poor Consumer Confidence
The appeal of Pound Sterling (GBP) remained relatively muted following an unimpressive Nationwide House Prices survey, which indicated a sharp slowing in the domestic housing market as it dropped from 5.7% to 4.9%. As confidence in the outlook of the UK economy is generally hampered by concerns over the outcome of June’s EU membership referendum, this decline gave markets further reason to move away from the Pound.
Sterling extended its downtrend against the Euro on Friday after the UK GfK Consumer Confidence Survey reinforced the worries surrounding the domestic economy. The index weakened more sharply than investors had anticipated, slipping from 0 to -3 as ‘Brexit’ uncertainty continued to weigh on confidence. Although March Mortgage Approvals are forecast to have risen, it seems unlikely that the Pound will regain the bullish form seen earlier in the week.
Current EUR, USD, GBP Exchange Rates
At the time of writing, the Euro to US Dollar (EUR/USD) exchange rate was making gains around 1.1376, while the Euro to Pound Sterling (EUR/GBP) pairing was trending higher in the region of 0.7790. Meanwhile, the Pound Sterling to US Dollar (GBP/USD) exchange rate was trending narrowly at 1.4599.