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GBP/EUR Exchange Rate Declines on UK Steel Crisis, GBP/USD Trending Narrowly


Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast to Hold Losses after Core Eurozone Inflation Betters Expectations

The Pound Sterling to Euro (GBP/EUR) exchange rate softened by around -0.4% on Thursday afternoon.

With the UK in the midst of a major steel crisis the British Pound softened versus most of its major peers. The Tata Steel company stated that its UK business was worth nothing and are now attempting to sell and withdraw from the UK altogether.

‘It’s absolutely essential that a foundation industry like steel is protected in order that we can have the much-vaunted march of the makers that the government talks about,’ said Len McCluskey, head of the Unite union.

The UK asset recovered some of its losses, however, after domestic data produced mostly positive results. Of particular significance was the final figure for fourth-quarter Business Investment which showed an annual gain of 3%, significantly better than expectations of 2.4%.

Additional Sterling gains can be linked to fourth-quarter Gross Domestic Product which saw both the annual and quarterly measures exceed the respective median market forecasts.

‘The (GDP) figures paint a picture of an economy continuing to be driven by consumers at a time of deepening troubles in the world economy. Recent surveys suggest optimism may be fading amid concern that the UK might vote to quit the European Union on June 23,’ wrote Bloomberg author Jill Ward.

The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.2628.

Eurozone Consumer Prices data produced positive results today, which caused the single currency to advance versus most of its major peers. March’s annual Eurozone Consumer Price Index Estimate met with the median market forecast rise from -0.2% to -0.1%. However, March’s annual Core Eurozone Consumer Price Index eclipsed the market consensus of a gain from 0.8% to 0.9%, with the result actually rising to 1.0%.

Whilst US Dollar weakness has provided support for the Euro, thanks to negative correlation, the single currency has not been able to sustain any significant gains. This is mostly the result of damp sentiment amid concerns that the European Central Bank (ECB) will have no choice but to expand monetary stimulus even further to combat inflationary weakness.

Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast to Trend Narrowly on Reduced Fed Rate Hike Bets

The Pound Sterling to US Dollar (GBP/USD) exchange rate was trending within a limited range on Thursday afternoon.

In the days following a particularly dovish speech from Federal Reserve Chairwoman Janet Yellen, the US Dollar has softened considerably. Whilst few analysts believed that the Fed would hike four times in 2016, as originally projected by the central bank, there is now the very real prospect of no policy tightening at all.

Yellen stated that the central bank needs to be extremely cautious when considering policy outlook thanks to external risks posed, in the main, by China’s economic slowdown. This essentially quashed hopes of a near-term rate hike despite recent hawkish speeches from Fed officials.

US Dollar overvaluation is also a massive stumbling block for the Federal Open Market Committee (FOMC). Hiking the overnight cash rate would result in an influx of demand for the US Dollar which has the potential to take it to levels that could have a significantly negative impact on economic growth.

The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending in the region of 1.4376.

Pound Sterling (GBP) Exchange Rate Forecast: Political Uncertainty to Provoke Losses

Given that the news regarding the British steel crisis has only added to political uncertainty initiated by ‘Brexit’ concerns, there is a very real chance that the Pound will decline over the coming months.

With that said, there will be some domestic reports on Friday with potential to cause Sterling volatility. Nationwide House Prices and the British Manufacturing PMI will both be of interest to those invested in the UK Pound.

The GBP/EUR exchange rate is likely to hold losses now that Eurozone inflation is showing some signs of improvement. However, Eurozone Unemployment Rate data could cause volatility.

With reduced bets regarding a Federal Reserve rate hike after Yellen’s damaging dovish comments, there is a high chance that the GBP/USD exchange rate will continue to hold gains. There will be some significant US Data on Friday, however, with March’s Unemployment Rate and Change in Non-Farm Payrolls likely to cause changes.

The Pound Sterling to Euro (GBP/EUR) exchange rate was trending within the range of 1.2577 to 1.2691.

The Pound Sterling to US Dollar (GBP/USD) exchange rate was trending within the range of 1.4325 to 1.4427 during Thursday’s European session.