- Latest poll gave ‘Remain’ thirteen point lead – Pound surged as investors piled back into the currency
- Eurogroup expected to release Greek bailout funds – Worries over continued IMF involvement undermined Euro sentiment
- Fed hawkishness continued to drive US Dollar demand – GBP/USD exchange rate strengthened despite rising odds of June rate hike
- UK GDP Ahead – Slowing growth could weigh on Pound rally
GBP/EUR Exchange Rate Fluctuates after Greek Bailout Approval
Some of the strength recently seen in the Pound Sterling to Euro (GBP/EUR) exchange rate diminished on Wednesday morning, with investors lacking in further reason to buy into the currency.
However, that state of affairs didn’t last long and further indications that the UK will vote to stay in the European Union in June later sent the Pound beyond the 1.32 level against its European peer.
While recent polls have indicated that the British public is more in favour of remaining in the EU than Brexit-ing, reports from various financial institutions have also undermined some of the main arguments put forward by the ‘Leave’ campaign.
Over the course of Wednesday’s European session the Pound Sterling to Euro exchange rate was able to achieve a high of 1.3218.
Meanwhile the Pound Sterling to US Dollar exchange rate advanced by as much as 0.7% to hit a high of 1.4729.
Confidence in the Euro (EUR) rallied early on Wednesday morning thanks to the Eurogroup’s approval of the next tranche of Greek bailout funds. With concerns over the future of the Greek economy easing somewhat this prompted the Pound Sterling to Euro (GBP/EUR) exchange rate to trim some of its previous gains, although the pairing still trades above the key 1.31 level.
Further support for the Euro came in the form of the German IFO Business Climate, Current Assessment and Expectations indexes, which all printed above forecasts.
The reports prompted this response from Clemens Fuest, President of the IFO Institute, ‘the business climate has improved for the third consecutive time. The companies assessed their situation somewhat more favourably. Their expectations brightened noticeably, and production plans remain expansionary. A significant contribution to this improvement came from capital goods manufacturers.’
The Pound Sterling to Euro (GBP/EUR) exchange rate was trending in the region of 1.3218 following the publication of all the Eurozone reports, up 0.6% on the day’s opening levels.
Whether or not this uptrend continues largely depends on the outcome of Thursday’s UK growth report for the first quarter. Markedly slowing output may have a negative impact on Sterling demand.
(Previously updated at 17:06 on 24/05/2016)
Stronger US Data Failed to Reverse GBP/USD Exchange Rate Uptrend
Worries over the outcome of this afternoon’s Eurogroup meeting continued to rise after the IMF’s intervention, prompting the Pound Sterling to Euro (GBP/EUR) exchange rate to extend its gains further.
While April’s US New Home Sales figure was found to be stronger-than-forecast at 16.6% this was nevertheless not enough to boost the US Dollar (USD) against the buoyant Pound.
(Previously updated at 10:39 on 24/05/2016)
Pound (GBP) Bullish after ‘Brexit’ Opinion Poll Suggested Greater ‘Remain’ Support
Although it was a relatively slow start to the week, Pound Sterling (GBP) entered a bullish run across the board on Tuesday. This strong move higher was largely attributable to the latest opinion poll, which suggested that the ‘Remain’ campaign continues to lead its rivals. Part of the swing towards ‘Remain’ came from an increasing level of support from Conservatives and older voters in general, demographics who had been more inclined to vote ‘Leave’ in previous polls. As a result investors were quick to pile back into the Pound, bolstering the currency as ‘Brexit’ fears dimmed once again.
Further Pound movement could be seen in response to the latest comments from Bank of England (BoE) Governor Mark Carney, who will be speaking to a parliamentary committee about the BoE’s Quarterly Inflation Report. This could prompt additional Sterling confidence, given Carney’s previous suggestion that a vote to leave the EU might prompt a recession. Even so, the strength of the Pound may prove fleeting, with another round of profit taking likely to ensue.
Euro (EUR) Softened despite Hopes of Imminent Disbursement of Greek Bailout Funds
While markets are generally confident that the latest Eurogroup meeting will result in the unlocking of the next tranche of Greek bailout funds, the Euro (EUR) nevertheless softened. Tensions appear to be on the rise yet again between creditors, with Eurozone lenders at loggerheads with the International Monetary Fund (IMF) over the issue of debt relief. The IMF has warned that its continued participation requires ‘upfront and unconditional’ debt relief for the Hellenic nation, a demand that is unlikely to be well received.
These renewed concerns outweighed the positive impact of some solid German GDP figures, which showed that the Eurozone’s powerhouse economy had grown strongly in the first quarter. However, investors are cautious that this trend could ultimately prove fleeting, given recent signs of slowness within the domestic economy. With the future of the Greek bailout once again dominating market sentiment the impact of May’s ZEW Economic Sentiment Surveys could also be limited, although a downside surprise would add further pressure to the weakened single currency.
Hawkish Fed Commentary Continued to Shore up US Dollar (USD) Exchange Rate
Demand for the US Dollar (USD) was generally strengthened at the start of the week, in spite of a disappointing Manufacturing PMI. Growth in the domestic manufacturing sector unexpectedly weakened in May from 50.8 to 50.5, reiterating recent signs of slowness within the world’s largest economy. Although the Federal Open Market Committee (FOMC) had stressed that the timing of its next interest rate was data-dependant this nevertheless failed to particularly dent the appeal of the ‘Greenback’.
Members of the FOMC, meanwhile, continued to take a hawkish view on monetary policy. Both the San Francisco and St Louis Fed Presidents expressed the view that interest rates could be hiked two or three times before the end of the year, pushing the US Dollar higher against rivals. Commenting on this push towards higher expectations of tightening, researchers at ING explained:
‘We have noted that in recent months, the sensitivity of FX markets to US data surprises has been diminishing. This de-coupling typifies the challenge the Fed faces in guiding market expectations when it leaves data to do the talking; expect Fedspeak to get a lot louder.’
While the odds of a June rate hike are being increasingly priced into the ‘Greenback’, however, the likelihood of such a move is still generally believed to be weaker than the odds of another rate freeze. Consequently the Pound Sterling to US Dollar (GBP/USD) exchange rate returned to an uptrend on Tuesday morning.
Current GBP, EUR, USD Exchange Rates
At the time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was making strong gains around 1.3002, while the Pound Sterling to US Dollar (GBP/USD) pairing was trending higher in the region of 1.4533. Meanwhile, the Euro to US Dollar (EUR/USD) exchange rate was slumped around 1.1174.