GBP/EUR Exchange Rate Faltered as German Confidence Edged Higher
A disappointing US Consumer Confidence figure kept the US Dollar (USD) on a weaker footing against rivals overnight, although demand for the Pound (GBP) also softened.
On Wednesday morning the Pound Sterling to Euro (GBP/EUR) exchange rate was trending lower in the region of 1.2891, prompted lower by an unexpected improvement in the German GfK Consumer Confidence Survey.
However, the news that annual UK GDP for the first quarter printed slightly stronger than projected limited Sterling losses.
On Thursday UK Nationwide House Price data showed smaller-than-forecast average increases in property values on both the month and year.
- Pound pushed higher after recent weakness considered overdone
- Weaker German confidence dented Euro demand
- US Dollar softened as domestic home sales declined
- GBP exchange rates predicted to cede ground with slowed UK GDP
Decreased ‘Brexit’ Worries Boosted Pound Sterling (GBP) Exchange Rate
Investors continued to flock back to Pound Sterling (GBP) at the start of the week, with recent support for the ‘Remain’ campaign from US President Barack Obama and the latest polls somewhat diminishing ‘Brexit’ worries. Indications that the UK is more likely to vote to remain within the EU have led many traders to re-evaluate the outlook of the currency, with many taking the view that Sterling’s depreciation has been overdone.
This bullish run could be ended on Wednesday with the publication of the UK’s first quarter GDP report, however, as expectations point towards a slight slowing in growth. As James Knightley, senior economist with ING, noted:
‘It is likely that much of this weakness is related to anxiety over the UK’s referendum on EU membership. Businesses appear to be particularly worried with a recent survey of Chief Financial Officers by Deloitte’s suggesting that Brexit fears are the biggest issue for UK companies right now. This has led to a steep drop in risk appetite with expectations for hiring new workers and capital spending at three-year lows.’
Should ‘Brexit’-based uncertainty have indeed formed a significant drag on the UK economy at the start of the year demand for the Pound is expected to decline sharply. With some weeks still to go before the referendum general market anxiety is also unlikely to remain muted for long.
Disappointing German Sentiment Surveys Weakened EUR/GBP Exchange Rate
Despite increasing scepticism that the European Central Bank (ECB) can deliver on its suggestion that interest rates could still go lower, the Euro (EUR) weakened on Monday. This was due to the release of the German IFO Business Sentiment Survey for April, which indicated that the mood in the Eurozone’s powerhouse economy is not overly positive. Both the Business Climate and Current Assessment measures showed an unexpected decline on the month, while the outlook of businesses was weaker-than-forecast. As this reaffirmed that negative global headwinds are weighing heavily on the domestic economy the Pound Sterling to Euro (GBP/EUR) exchange rate made strong gains.
Wednesday’s German GfK Consumer Confidence Survey and Import Price Index data could offer some renewed support to the single currency, providing these buck the recent trend of unimpressive domestic data. Further signs of weakness within the German economy, however, are likely to push the Euro lower across the board.
US Dollar (USD) Forecast to Rally on Higher Durable Goods Orders
Confidence in the US Dollar (USD) was equally dented as domestic data continued to undermine the chances of the Federal Open Market Committee (FOMC) raising interest rates in the near future. The Dallas Fed Manufacturing Survey failed to show a modest pickup in activity as investors had anticipated, while the US housing market demonstrated fresh signs of slowing. New Home Sales slumped on the month in March from 2.0% to -1.5%, prompting the ‘Greenback’ to soften further against rivals.
Some measure of strength could return to the US Dollar on Tuesday afternoon, however, with the latest Durable Goods Orders figure expected to show a substantial uptick. After February’s disappointing showing of -3.0%, investors could be encouraged by any signs of improved demand. Nevertheless, with the FOMC unlikely to take a more hawkish view of monetary policy at the Fed’s April policy meeting, the Pound Sterling to US Dollar (GBP/USD) exchange rate could extend its recent gains further.
Current GBP, EUR, USD Exchange Rates
At the time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was trending higher at 1.2890, while the Pound Sterling to US Dollar (GBP/USD) pairing was making gains around 1.4548. Meanwhile, the Euro to US Dollar (EUR/USD) exchange rate was on an uptrend in the region of 1.1287.