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GBP to EUR, USD Exchange Rates Cool on ‘Brexit’ Jitters


Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast to Decline despite Dovish ECB

With markets pricing in ‘Brexit’ jitters as a British issue, the Pound Sterling to Euro (GBP/EUR) exchange rate softened by around -0.2%.

Political uncertainty has had a particularly detrimental impact on demand for the British Pound lately. Recent EU referendum polls show that the vote is very close and will likely come down to the wire on June 23rd.

The government’s latest announcement that taxpayers’ money will be used to fund a leaflet campaign expounding upon the value of remaining part of the European Union has already caused controversy. Many ‘out’ campaigners are outraged that the two sides are being unfairly represented, and are angered by Prime Minister David Cameron’s missed promise that no taxpayer money would be used to fund either campaign.

The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.2377.

‘I think it is deeply disappointing that the government is going to spend taxpayers’ money in a bid to distract the media headlines away from the allegations of offshore banks that have dogged the prime minister,’ Robert Oxley, a Vote Leave spokesman, said. ‘Our money should not be used on propaganda, trying to buy votes. We already send £350m to Brussels each week. We should spend our money on our priorities like the NHS.’

Meanwhile the Euro is trending higher versus a number of its major peers despite a dovish European Central Bank (ECB) Chief Economist and a strong US Dollar.

The ECB’s Chief Economist Peter Praet stated today that the central bank may launch additional stimulus measures if necessary. ‘If further adverse shocks were to materialize, our measures could be recalibrated once more commensurate with the strength of the headwind, also taking into account possible side-effects.’

The softer British Pound has supported Euro strength thanks to the prospect of more lucrative trade. However, markets have not currently priced-in the impact of a ‘Brexit’ on the Euro. With that in mind, a vote to leave the EU would cause the Pound to soften but the Euro would probably be the biggest loser.

Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast to Cool on FOMC Minutes

The Pound Sterling to US Dollar (GBP/USD) exchange rate declined by around -0.3% on Thursday morning.

Although the latest publication of Federal Open Market Committee (FOMC) meeting minutes confirmed comments made in Chairwoman Janet Yellen’s speech that policymakers will approach rate hikes cautiously, the US Dollar advanced versus many of its major peers.

The appreciation can be linked to signs of dissent within the ranks as some of the previously dovish policymakers are calling for a rate hike sooner-than-later. Most analysts now expect the FOMC to address rate hikes in every future meeting, with most predicting a lift-off in June.

The minutes also showed that policymakers expected the domestic economy to continue improving; ‘The staff continued to project that real GDP would expand at a somewhat faster pace than potential output in 2016 through 2018, supported primarily by increases in consumer spending. The unemployment rate was expected to gradually decline further and to run somewhat below the staff’s estimate of its longer-run natural rate over this period; the staff’s estimate of the natural rate was revised down slightly in this forecast. The staff’s forecast for inflation over the first half of the year was revised up somewhat, reflecting recent increases in the price of crude oil as well as stronger-than-expected data on core consumer prices early in the year.’

The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending in the region of 1.4094.

Pound Sterling (GBP) Exchange Rate Forecast: EU Referendum Uncertainty to Continue to Weigh on Demand

With so much uncertainty surrounding the EU referendum the British Pound is highly unlikely to sustain any notable gains. However, there is the potential for short-term appreciation if Friday’s data prints positively. Industrial Production, Manufacturing Production and Trade Balance data will all be likely to provoke GBP volatility.

For those invested in the single currency, German Trade Balance data may cause changes. However, concerns regarding additional ECB stimulus measures may limit the Euro’s appeal.

Later tonight Fed Chairwoman Janet Yellen will make a speech alongside fellow Fed officials. If Yellen reiterates the need for caution in the face of external risks, the US Dollar could return to bearish trade.

The Pound Sterling to Euro (GBP/EUR) exchange rate was trending within the range of 1.2311 to 1.2429.

The Pound Sterling to US Dollar (GBP/USD) exchange rate was trending within the range of 1.4048 to 1.4157 during Thursday’s European session.