‘Buck’ (USD) Softening Today after International Monetary Fund (IMF) Warns of Global Stagnation Risks
With the International Monetary Fund (IMF) having cut back its global economic growth forecast once more, warning of potential stagnation after another year of weaker than expected recovery, the appeal of the ‘Greenback’ (USD) has declined further. As the IMF forecast for the UK was generally more optimistic Sterling (GBP) has appreciated today, with both the GBP/EUR and GBP/USD exchange rates on strong uptrends.
On a day of limited domestic data the prospects of the Pound (GBP) remain driven by Monday’s disappointing UK Services PMI reading, as the ‘Buck’ (USD) struggles to recover from the dovish influence of latest shortfalls on US figures.
Sterling (GBP) Bearish after Disappointing UK Services PMI Renewed Fears over State of Domestic Economic Recovery
It has not been a strong start to the week for the Pound (GBP) after the UK Services PMI failed to show an improvement, instead clocking in at a decided decline at 53.3. As the service sector is the single largest contributor to national GDP, far outweighing the influence of the construction industry, this shortfall seemed to reflect ill on the prospects of the general economic recovery. With the UK Composite PMI also significantly down on forecasts, Sterling experienced a strong downturn in demand to slump against rivals. In response, traders have also continued to push back their expectations for a Bank of England (BoE) interest rate increase, with some now pricing in a rate hike as late as 2017.
With little fresh data of significance due out over the course of Tuesday the Pound has remained generally soft, hoping for a potential rally on tomorrow’s domestic Industrial and Manufacturing Production figures.
Improved German Construction Output Figure Helps Single Currency (EUR) Remain Dominant Today to Detriment of GBP/EUR Exchange Rate
Economic data continues to be less than supportive of the common currency (EUR), with yesterday’s raft of Eurozone PMIs disappointing and this morning’s German Factory Orders demonstrating a marked decline. However, the news has not been entirely bleak for the Euro as Germany’s latest Construction PMI displayed strong expansion in the sector, rising from 50.3 to 52.4 on the month. Somewhat counteracting concerns that the Eurozone’s major economy is experiencing significant contractions as a result of wider global slowdown pressures, this strong showing has helped to lower expectations of the need for imminent monetary loosening from the European Central Bank (ECB).
An upbeat outcome from a meeting of Eurogroup finance ministers has also helped to support the single currency today, with progress towards the first creditor review of Greece seeming to remain on track and the outlook of the currency bloc currently stabilised.
Softening US Data Continues to Weigh on ‘Buck’ (USD) as 2015 Fed Rate Rise Hopes Recede Further
Following up the unexpectedly weak Change in Non-Farm Payrolls figure released ahead of the weekend, which had generally dampened the odds of a 2015 interest rate rise from the Federal Open Market Committee (FOMC), Monday produced some equally discouraging US data. Both the ISM Non-Manufacturing PMI and Labour Market Conditions Index printed below expectations, with growth within the domestic economy showing undeniable signs of slowing. Raising concerns that the world’s largest economy could still be feeling the effects of the recent Chinese market instability this set the ‘Greenback’ (USD) on a fresh downtrend.
This afternoon’s US Trade Balance is forecast to show a widening of the domestic deficit and seems unlikely to provide any incentive for a rally, barring an unexpectedly improved figure.
Current GBP, EUR, USD Exchange Rates
At time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was slumped in the region of 1.3525, while the Pound Sterling to US Dollar (GBP/USD) pairing was trending narrowly around 1.5155. Meanwhile, the Euro to US Dollar (EUR/USD) conversion rate was on an uptrend in the range of 1.1204.