- GBP Exchange Rates Rally – Retail sales growth exceeds expectations
- EUR Muted on ECB Minutes – Policymakers back accommodative policy
- USD Fluctuates on Hawkish Fed – Federal Reserve rate hike bets improve
- GBP Forecast to Hold Gains – ‘Brexit’ fears ease
ECB Minutes show Policymakers Back Accommodative Policy Outlook
The Publication of the European Central Bank (ECB) minutes from the most recent interest rate decision had minimal impact on the single currency. The bulk of the text showed how policymakers came together to fight against the growing concern that ultra-accommadative policy outlook is not having the desired impact.
‘There was general agreement that there was a need to counter the perception that monetary policy could no longer contribute to a return of inflation (to the ECB’s target),’ the ECB said. ‘In light of recent public criticism…in a Member State, it was viewed as important to reaffirm collectively the independence of the ECB in the pursuit of its mandate.’
Pound Sterling (GBP) Exchange Rates Advance on Positive Domestic Data
On Wednesday the UK Pound strengthened considerably in response to the combination of positive domestic data and a supportive EU referendum opinion poll for the ‘Remain’ campaign. British employment reached a record-high and wage growth exceeded expectations.
According to the Ipsos MORI poll, the campaign to keep Britain in the EU took an 18 percentage point advantage over those campaigning for a ‘Brexit’. Sterling climbed to a 10-week high against the Euro following the news, rising above 1.30.
‘It’s clear that there is a move to ‘Remain’. Equally, we need to wait to see if that’s an ongoing trend,’ said Ipsos MORI’s head of political research, Gideon Skinner.
Today, the British asset has extended gains versus all of its major peers, even after improved Federal Reserve rate hike bets increased the prospect of wider divergence between the Fed and Bank of England (BoE) policy outlooks.
Sterling’s appreciation today was in response to much better-than-expected retail sales growth. On the month, April’s Retail Sales was expected to show 0.7% growth, but the result actually advanced by 1.5%. On an annual basis, April’s 4.2% retail sales growth significantly bettered the median market forecast 2.0%.
‘Clothing stores remain the main drag on growth in the retail sector, with sales hampered by unseasonal weather. However… sales increased in April compared with March as lower prices boosted sales,’ ONS statistician Melanie Richard said.
Euro (EUR) Exchange Rates Mixed ahead of ECB Policy Meeting Minutes
Amid concerns that the European Central Bank (ECB) will have no choice but to ease policy further thanks to deflationary pressures in the Eurozone, the single currency struggled to sustain any notable gains.
The publication of comparatively hawkish Federal Reserve minutes also weighed on demand for the Euro, not just because of negative correlation and the USD appreciation, but also in response to concerns of even wider divergent policy outlooks between the two central banks.
The single currency is fluctuating verses its most major peers today as traders await the European Central Bank account of the most recent monetary policy meeting. A slight lean towards depreciation can be linked to less-than-ideal domestic data results, however.
March’s Eurozone Construction Output contracted by -0.9% and -0.5% on the month and year respectively.
Also weighing heavily on demand for the single currency is the fraying relationship between the ECB and Germany. As the currency bloc’s most influential nation, the accommodative policy stance taken by the ECB is thought to be damaging to Germany’s growth prospects.
Germany’s Constitutional Court will rule on June 21st regarding the emergency bond-buying plan devised by the ECB at the height of the crisis.
Germany blocking the plan ‘would be an act of revolution against the European Court,’ Dietrich Murswiek, a law professor and legal adviser to parliamentarians of Angela Merkel’s government, said. ‘Germany would find itself in a dilemma because on one hand it is bound by decision by the Constitutional Court, on the other hand it’s bound by obligations under European law.’
US Dollar (USD) Exchange Rates Fluctuate on Profit Taking
The US Dollar rallied versus its major peers during Wednesday’s European session following the publication of minutes from the most recent Federal Open Market Committee (FOMC) interest rate decision.
Given that Fed Chairwoman Janet Yellen delivered a dovish speech during the accompanying press conference following the rate decision, most analysts expected the minutes to reiterate the need for patience with regards to tighter policy.
However, the minutes surprised investors as several policymakers argued that a rate hike may be possible in June, provided domestic data provides the platform.
On Thursday the US Dollar cooled versus a number of its major peers, however. The depreciation is likely the result of profit taking after yesterday’s surge opened up some attractive selling opportunities.
Later today, US labour market data is likely to cause significant volatility given that policymakers have made it clear that policy changes will be data dependent. Positive results, therefore, will likely cause the US Dollar to rally.
The Pound Sterling to Euro (GBP/EUR) exchange rate was trending within the range of 1.2972 to 1.3073 during Thursday’s European session.
The Pound Sterling to US Dollar (GBP/USD) exchange rate was trending within the range of 1.4560 to 1.4664.