- Opinion polls suggested stronger ‘Brexit’ support – Pound plunged against rivals on renewed referendum fears
- Euro on mixed form after poor German Factory Orders – Outlook of Eurozone economy struggled to improve
- Odds of imminent Fed hike dramatically lowered by weak jobs data – US Dollar began to regain ground after poor payrolls report
- GBP/USD exchange rate boosted by Yellen’s speech – June rate hike seen as unlikely
BRC Sales Bettered Forecast to Boost Pound Sterling (GBP) Exchange Rate
Stronger-than-expected BRC Like-for-Like Sales figure prompted the Pound (GBP) to rally strongly on Tuesday morning, as consumer confidence appeared to have recovered in May.
As Fed Chair Janet Yellen acknowledged that a June interest rate rise is no longer likely the appeal of the US Dollar (USD) slumped once again, with concerns still heightened over the strength of the US economy.
Consequently the Pound Sterling to US Dollar (GBP/USD) exchange rate was trending higher around 1.4522 early in Tuesday’s European session.
As the European session continued the Pound extended gains against both the Euro and US Dollar, climbing beyond 1.2850 against the common currency.
Tomorrow’s UK Industrial and Manufacturing Production reports could provide the Pound with a boost if they print above forecast levels.
However, the rate of output in both areas is expected to be negative. If this proves to be the case we could see Sterling give up today’s gains against the Euro.
(Previously updated at 17:04 on 06/06/2016)
Improved Eurozone Confidence Kept Euro (EUR) on Stronger Form
A stronger-than-expected Sentix Investor Confidence Index helped to keep the Pound Sterling to Euro (GBP/EUR) exchange rate on a downtrend. Sentiment strengthened from 6.2 to 9.9 in June, suggesting that the Eurozone was in stronger health than previously thought. As a result the GBP/EUR currency pair trended lower in the region of 1.2728.
(Previously updated at 14:48 on 06/06/16)
‘Brexit’ Polls Weighed Heavily on Pound Sterling (GBP) Demand
While the May UK Services PMI strongly bettered expectations on Friday, this failed to keep the Pound (GBP) on a more bullish footing against rivals for long. Even though the service sector accounts for more than three quarters of the UK’s economic growth, this sign of robust expansion was soon overshadowed by persistent ‘Brexit’ fears. In recent weeks the polls have shown an increasing tightness between the two camps in the EU referendum, spooking investors as the ‘Leave’ campaign seems to be gaining significant momentum.
Monday morning saw a particularly sharp slump in demand for Sterling, as an Observer/Opinium poll placed support for ‘Leave’ ahead at 43% with ‘Remain’ on just 40%. This apparent swing towards ‘Brexit’ gave investors reason to sell out of the Pound at the start of the week, particularly as a number of other opinion polls showed a similar shift in support. With the referendum now less than three weeks away the appeal of the Pound is likely to remain primarily tied to ‘Brexit’ worries, particularly if the odds of an exit from the EU continue to mount.
According to one industry expert:
‘With both sides likely to step up their game over the next couple of weeks, I imagine we’ll see a lot more volatility in the Pound, and the closer the polls get, or if ‘Vote Leave’ continues to push ahead, the pound may find itself back towards April’s lows before too long.’
With less than three weeks until the all-important vote, any Brexit-related news is likely to have a more notable impact on GBP/EUR exchange rate trading.
That being said, investors will also be looking to this week’s main UK news – Industrial/Manufacturing Production figures and the NIESR GDP print for guidance.
GBP/EUR Exchange Rate Hit Three-Week Low despite Mixed Eurozone Data
Confidence in the outlook of the Eurozone took something of a blow ahead of the weekend, thanks to the disappointing nature of the latest raft of Services and Composite PMIs. Markets were equally discouraged by weaker-than-expected domestic Retail Sales figures, which pointed towards growing slowdown pressures within the local economy. These weaker showings would seem to suggest that the European Central Bank (ECB) is likely to retain its easing bias for some time to come, encouraging bets of further monetary loosening in the near future. However, demand for the single currency was sharply boosted on Friday as the odds of an imminent Fed interest rate hike plunged, reducing the chances of further policy divergence between the central banks.
Although April’s German Factory Orders also proved discouraging, this was not enough to particularly dent the Euro on Monday, allowing the Pound Sterling to Euro (GBP/EUR) exchange rate to slump to a fresh three-week low of 1.2657. Investors received some reassurance in the form of the latest Eurozone Retail PMIs, meanwhile, which generally climbed back into expansion territory in May. With risk appetite on the decline this improvement helped to shore up demand for the common currency.
US Dollar (USD) Trended Higher ahead of Yellen Speech
The appeal of the US Dollar (USD) plunged on Friday in response to the latest Non-Farm Payrolls report, with the headline figure coming in significantly short of expectations at just 38,000 rather than the forecast 160,000. This notable disappointment saw the odds of a summer rate hike from the Fed slashed, undermining the impact of earlier bullish data and hawkish commentary from various members of the Federal Open Market Committee (FOMC). In the aftermath of the surprisingly weak data Danske Bank senior analyst Mikael Olai Milhøj commented that:
‘We stick to our view that the Fed will hike in September but we need to see a rebound in employment so risk is skewed towards a later hike. The probability of a June hike according to market pricing has fallen from around 30% to 10%, July from 70% to 40% and September from around 85% to 60%. A hike this year is no longer fully priced in (all numbers are approximations).’
Nevertheless, the ‘Greenback’ recovered some ground on Monday morning as investors awaited the latest speech from Fed Chair Janet Yellen. Markets are keen to see Yellen’s reaction to the May jobs data, although any signs of hawkishness are unlikely to encourage a particular rebound in bets for a June rate move. Increased safe-haven demand could support the US Dollar further in the coming days in spite of any concerns over the strength of the domestic economy, particularly as ‘Brexit’ risk increases.
Current GBP, EUR Exchange Rates
At the time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was slumped around 1.2712, while the Pound Sterling to US Dollar (GBP/USD) pairing was trending lower in the region of 1.4437. Meanwhile, the Euro to US Dollar (EUR/USD) exchange rate was trending narrowly at 1.1354.