Optimistic Eurogroup Meeting Fails to Boost Euro (EUR) Exchange Rate
Eurogroup President Jeroen Dijsselbloem indicated that positive progress had been made towards the conclusion of the Greek bailout review following the latest meeting of Eurozone finance ministers. However, investors remained generally dismissive of the chances for an imminent deal, particularly as Greek finance minister Euclid Tsakalotos indicated that contingency austerity measures would not be possible under domestic law. This allowed the Pound Sterling to Euro (GBP/EUR) exchange rate to extend its bullish run, trending higher in the region of 1.2795 towards the close of Friday’s European session.
- Pound rallied after forecast suggested only 20% chance of British vote to leave EU
- Eurozone PMIs failed to boost Euro as growth faltered
- US Dollar softened by persistent disappointing US data
- GBP/USD exchange rate forecast to climb on weaker US Manufacturing PMI
Odds of ‘Brexit’ Fall to 20% Boosts Pound Sterling (GBP) Demand
While the latest UK Retail Sales and public finance figures proved decidedly disappointing on Thursday, these ultimately failed to weigh down on the Pound (GBP) for long. Investors were particularly unimpressed to find that the UK government had overshot its borrowing target for the 2015-2016 fiscal year by 1.8 billion Pounds. This was a serious embarrassment for Chancellor George Osborne and brings his hopes of erasing the national deficit by the end of the current parliament further into question.
Confidence in Sterling nevertheless improved ahead of the weekend as polls were found to increasingly point towards the UK voting to remain within the European Union. The Number Crunchers Politics Referendum Forecast assessed that the odds of a ‘Brexit’ had dropped to just 20% in the last week, news that prompted investors to pile back into the softened currency. As a result the Pound entered a strong uptrend across the board, climbing in spite of a lack of supportive UK ecostats.
Euro (EUR) Exchange Rate Slumps after Eurozone PMIs Indicate Disappointing Growth
On Thursday the Euro (EUR) rallied against rivals in the wake of the European Central Bank’s (ECB) April policy meeting, as markets remained unconvinced that the central bank has further capacity to loosen monetary policy. ECB President Mario Draghi maintained a more dovish tone in the accompanying press conference, indicating a belief that interest rates could go lower but also dismissing speculation that ‘helicopter money’ had been discussed at this juncture. With investors increasingly disinclined to put stock in Draghi’s words, the single currency regained much of the ground it had lost ahead of the meeting.
The appeal of the common currency softened again on Friday morning after the latest raft of Eurozone PMIs proved generally disappointing. Despite a stronger uptick in the German manufacturing sector, growth across the rest of the currency union was decidedly lacklustre, suggesting that negative headwinds are continuing to weigh on the local economy. In its report, Markit noted that:
‘Only moderate growth was again seen in both manufacturing and services. In both cases the rates of expansion were just below the averages for the first quarter of 2016.’
US Dollar (USD) Forecast to Trend Lower on Weaker Manufacturing PMI
Demand for the US Dollar (USD) remained muted as domestic data continued to diminish the likelihood of the Fed raising interest rates in the near future. Although the March Leading Indicators figure showed some improvement, rising from -0.1% to 0.2%, this was contrasted by a sharply disappointing Philadelphia Fed index. The manufacturing survey indicated that the economic outlook had weakened, dropping from 12.4 to -1.6 in April as sentiment turned increasingly bearish.
This weaker showing does not bode overly well for Friday’s US Manufacturing PMI, even though it is forecast to rise from 51.5 to 52.0. If the manufacturing sector of the world’s largest economy is found to have indeed weakened in the last month, this is likely to drive the ‘Greenback’ lower against rivals once again. Despite the chances of an April, or even June, Fed rate hike having already been severely dented a stronger showing here could still prompt some US Dollar bullishness heading into the weekend.
Current GBP, EUR, USD Exchange Rates
At the time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was trending higher at 1.2719, while the Pound Sterling to US Dollar (GBP/USD) pairing was making gains in the region of 1.4356. Meanwhile, the Euro to US Dollar (EUR/USD) exchange rate was on a narrow trend around 1.1286.