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GBP EUR, GBP USD Exchange Rates Charge; Blocking City Would be Bad for EU, Memo Claims

With little else to focus on at present, investors have been selling the Pound, causing the GBP EUR and GBP USD exchange rate to weaken.

Afternoon Update, 1st Feb; Strong ADP employment figures from the US haven’t been enough to undermine the GBP USD exchange rate today. The Pound is still up 0.5%, despite the US data showing 246,000 jobs were created in December, against forecasts of 168,000. A leaked EU memo, stating that the Union needs to give UK financial services access to the single market or risk strong economic harm, is boosting Sterling.

Midday Update, 1st Feb; The Pound continues to strengthen today, despite rising concerns over the manufacturing industry. The Markit sector PMI has remained strong at 55.9; only -0.2 points lower than previously. However, the measure for input price growth hit the highest level on record, rocketing from 77.7 to 88.3. This bodes ill for the inflation outlook, as these prices are soon likely to filter through to hit consumers in the pocket.

Morning Update, 1st Feb; The latest shop price index from the British Retail Consortium (BRC) has shown that retail prices fell at an accelerated pace in January. After December’s -1.4% decline, shop prices fell -1.7% last month, against forecasts of a slowing decline to 1%. The reaction amongst traders has been mixed, leaving GBP EUR and GBP USD stuck around opening levels.

Midday Update, 31st Jan; GBP EUR has sunk further today, extending losses to -0.7%, after strong Eurozone GDP figures. Growth in the fourth quarter accelerated to 0.5% on the previous three months, while Q3’s expansion was revised higher to 0.4%. Q3 year-on-year GDP was revised up to 1.8%, with Q4 reprinting at the same level, against forecasts of 1.7%.

Morning Update, 31st Jan; The Pound is stuck around opening levels versus the Euro and US Dollar today. This is despite the fact that the latest GfK consumer confidence survey improved from -7 to -5, instead of worsening to -8.

Pound Softens as Investor Focus Returns to Impending Brexit Negotiations

With the excitement of Theresa May’s Brexit speech and the Supreme Court verdict on the invoking of Article 50 now behind us, investors have been left without much to focus on. The big development on the horizon is, of course, the actual start of the exit process, which is pegged for the end of March if the government gets its own way.

Italian Deputy Foreign Minister Mario Giro has further dampened sentiment towards the EU exit negotiations after warning that the UK is headed towards an ‘economic cold war’ with the EU. As well as commenting that he reckons the hardliners in Europe who want to make a firm stand against the UK getting a favourable divorce deal are more numerous than many believe, Giro also commented that;

We are hearing more and more that there are people – economic interests – who are thinking they can inherit some economic position, thinking that they can take away from the UK some of the position of the City of London. Not Italy, of course, because we are not in that position. And this will be an economic war. Let’s say an economic cold war, and we are not in favour of it.

No data and a looming divorce from the EU makes for a dovish combination, so investors have either turned their focus away from the Pound, or are setting up short positions on Sterling.

Euro Pound Exchange Rate Rises; Euro US Dollar Stuck at Opening Ahead of German Data

The latest Eurozone data has been mixed overall, but leaning slightly towards the positive, ahead of the day’s key release of the German consumer price index. The outlook for the Spanish economy is looking positive after recording another 0.7% of growth in the final quarter of 2016. This means the Spanish economy has registered its third year of growth since emerging from recession, expanding 3.2% during 2016.

Meanwhile, Eurozone sentiment figures have largely improved, with consumer confidence, services, economic sentiment and industrial sentiment indices all recording above-forecast rises. Only the business confidence index for January surprised to the downside, remaining at 0.7 after the score for December was unexpectedly revised down from 0.8.

This has been enough to keep the Euro above opening levels versus the Pound, although Trump fears are also hitting European investors, so the Euro US Dollar exchange rate is edging below starting levels.

US Dollar Softens as Investors Consider Impact of Trump Immigration Ban on Businesses

The US Dollar has been hit by market jitters as investors begin to ponder the wider implications of his controversial policies.

In particular, his ban on immigrants and refugees from seven nations in the Middle East and Africa have unsettled traders, who worry about the impact this could have on US companies and trade policies.

As OANDA senior trader Stephen Innes explains;

World leaders were quick to condemn President Trump’s executive order to ban U.S. travel from seven Muslim countries. The global reaction has been one of universal condemnation.

The fear here is that the market may start to think that personal vendetta is clouding the Oval Office judgment and they could express a huge vote of non-confidence through the markets.

The increase in civil unrest alone should be a concern for investors, and with a lack of clarity on the economic policy front, markets will be cantankerous early in the week as they’re completely uncertain of what’s next from President Trump on the geopolitical landscape.

GBP EUR, GBP USD Exchange Rate Forecast; Volatility Ahead from Eurozone CPI, US Spending

There is no UK data on the economic calendar, but the Pound is unlikely to trend statically today. Two key releases from the Eurozone and US are likely to pressure GBP EUR and GBP USD exchange rates lower this afternoon, if forecasts are met.

German consumer price data for January is forecast to show an acceleration from 1.7% to 2% on the year. While investors may be cautious in showing too much enthusiasm, given that Mario Draghi attributed the last round of strong inflation data to oil rather than domestic strength, any improvement is still likely to support demand for the Euro.

The Federal Reserve prefers to measure US inflation using the personal consumption indicators, rather than CPI. Spending growth is expected to tick up 0.1% on the month, marking a return to growth after November’s stagnation, as well as a commensurate rise on the year to 1.7%. Odds of monetary tightening in the US are already strong, with investors postulating a 72% chance of a hike in June, but improved data here could still distract traders from their fears over Trump.

Therefore, the risks for the GBP EUR and GBP USD exchange rate seem firmly tilted to the downside.

Current Interbank GBP EUR, GBP USD Exchange Rate

At the time of writing, GBP EUR exchange rates were trading around 1.17, while EUR GBP exchange rates were trading around 0.85.

The GBP USD exchange rate was trending in the region of 1.25, while USD GBP exchange rates were trending in the region of 0.79.