Pound Bullish as Eurozone Industrial Production Figures Disappoint
Below-forecast Industrial Production figures for the Eurozone have seen the Euro tumble, allowing Pound Sterling to trend bullishly. On the month Industrial Production figures were expected to have slowed from 1.9% to -0.7%, but instead fell to -0.8%. On an annual basis, production was expected to slow from 1.9% to 1.2%, but instead slid to 0.8%.
Although the figures have weakened Euro sentiment, a more macro analysis shows that Eurozone industrial production remains strong. The sector accounts for 20% of economic output in the Eurozone, and continues to remain significantly higher than the previous year thanks to the 1.9% increase seen in January.
IMF Cuts UK Growth Forecast and Warns of Referendum ‘Damage’
The International Monetary Fund has released its latest quarterly World Economic Outlook report. Britain’s economic outlook has received a -0.3% cut since the last forecast, made in January, with GDP now predicted at 1.9%.
The IMF also waded into the EU referendum debate, claiming that a ‘Brexit’ could cause ‘severe global damage’, voiding trade agreements and creating an ‘extended period of heightened uncertainty’. Pro-EU politicians, including David Cameron, George Osborne and David Milliband have all welcomed the warning, but ‘Brexit’ supporters have claimed the IMF has a track record of getting its forecasts wrong.
Pound (GBP) Trends Bullishly on Strong UK Inflation Data
Today’s Consumer Price Index release has shown a strong rise in UK inflation. Core prices rose in March by 1.5% on the year, beating the forecast 0.1% rise to 1.3%. Non-core prices were expected to increase from 0.3% to 0.4%, but instead climbed 0.5%. The positive figures have already caused some to speculate that the Bank of England (BoE) could be incentivised to raise interest rates sooner than the current predictions, although there is still a considerable way to go before inflation reaches their 2% target.
David Cameron Announces New Tax Avoidance Measures in Parliament
The Prime Minister is currently taking questions from the opposition in Parliament regarding the ‘Panama Papers’ scandal. He has announced three additional measures to help create transparency and combat questionable tax practices. These include a new agreement between Britain, crown dependencies and territories overseas to share tax information. The UK will soon become the first country to create a beneficial ownership register, while a new law will be brought in which will hold companies criminally liable for employees who assist others in evading tax.
GBP News: Downing Street Announces George Osborne will Publish Tax Return
The Chancellor of the Exchequer will publish his tax information, potentially in the next few days, according to Downing Street. The decision was made by Prime Minister David Cameron and it is not clear how much dialogue he has had with the Chancellor before announcing this measure. According to No.10, the decision has been made as George Osborne is not only in charge of the nation’s finances, but also a potential future Prime Minister.
The shock of a pessimistic economic outlook for the UK has been short-lived, with poor Eurozone data boosting the GBP/EUR exchange rate today. Further movement in the pairing can be expected as building pressure on Prime Minister David Cameron to further clarify his financial affairs could drag on Pound Sterling (GBP), while the increasing prospect of more monetary stimulus from the European Central Bank has cooled Euro (EUR) appetite.
British Chambers of Commerce Survey Fails to Weaken Pound Sterling to Euro (GBP/EUR)
The Pound has remained largely impervious to the weakening effect of research from the British Chambers of Commerce (BCC) suggesting UK economic growth slowed in 2016 Q1. Almost all of the figures for the past three months show softer progress than the previous month. Both manufacturers and services firms saw a weakening in domestic sales growth and workforce growth, while service exports slowed from 15% to 13%. Manufacturing export growth accelerated from 1% to 8%.
Speaking of the data Chief Economist for the BCC David Kern said:
‘Although GDP growth for the previous quarter was upgraded slightly, our survey points to a slowdown in Q1 2016. This is the inevitable consequence of mounting global and domestic uncertainties, but it is nevertheless concerning that the vibrant and dominant services sector is likely to face mounting challenges in the next few years.’
Meanwhile, the political pressure on Prime Minister David Cameron continues to build. The Prime Minister published his tax return over the weekend, but rather than providing clarification it has simply raised more questions from the opposition. Of particular scrutiny is a pair of payments made by Cameron’s mother to the Prime Minister in 2011.
However, the fact that Parliament has returned after the Easter break has boosted hopes that there could be action taken on tax avoidance. Many expect that all MPs will now be required to publish their tax returns and the Prime Minister is also due to announce new measures to help crack down on tax avoidance.
It is also expected that Parliament will have to discuss the Conservative government’s unpopular decision to publish and distribute a tax-contribution funded pro-EU leavelet.
EUR/GBP Weakens as Italian Industrial Production Figures Post Surprise Fall
The Euro’s strength was quickly undermined following the release of the latest Industrial Production figures for Italy. February’s data severely disappointed forecasts, with monthly production declining -0.6%, rather than slowing to 0.5% as anticipated, while year-on-year figures slowed from 3.8% to 1.2%, -0.4% below forecast.
Weak Eurozone data tends to raise investor expectations of further economic stimulus from the European Central Bank (ECB), weakening Euro appeal. Investors are particularly concerned given that speculation is building over whether central banks are running out of tools with which to stimulate the economy. There have even been suggestions that the ECB could have to resort to ‘helicopter money’, a process involving cash payments direct to consumers in an attempt to fund increased spending.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: Sentiment to Rule on Quiet Data Day
The most important data from today’s near-empty docket has already been released, meaning market sentiment will likely be responsible for the majority of GBP/EUR movement. David Cameron is set to announce new measures to crack down on tax avoidance, which could help strengthen the Pound further on the distant prospect of increased tax receipts.
Tomorrow the main cause of volatility in the GBP/EUR exchange rate is likely to be the UK’s latest inflation data. With inflation forecast to improve to 0.4% the Pound could extend gains. However, a disappointing result has the potential to drive Sterling lower.
Current GBP, EUR Conversion Rates
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trading between 1.2352 and 1.2491, while the Euro to Pound Sterling (EUR/GBP) exchange rate is 0.8004 and 0.8090.