- GBP exchange rates gain – EU referndum polls show ‘remain’ lead
- EUR exchange rates steady – ECB uncertainty limits gains
- USD exchange rates soften– Rising crude prices reduce safe-haven demand
- Pound Sterling forecast to struggle – ‘Brexit’ fears continue to provide headwinds
GBP Exchange Rates Gain despite Disappointing CPI
Despite the fact that British inflation fell beyond expectations in April the Pound advanced versus most of its major peers. The appreciation was the result of a referendum poll which showed a lead for those voting to remain n the EU.
The Pound held gains against the Euro (trending in the region of 1.28) ahead of the publication of the UK’s latest employment figures.
However, if average earnings decline Sterling could come under pressure in the hours ahead.
Pound Sterling (GBP) Exchange Rate Forecast to Trend Narrowly on Quiet Data Day
With a distinct lack of influential domestic data pertaining to any of the major assets, thin trade has seen subdued exchange rate volatility thus far during Monday’s European session. The British Pound is trending within a limited range versus most of its currency rivals, despite data showing house prices rose in May.
‘Buy-to-let investors have had a bricks and mortar feast between the chancellor’s announcement in November and the tax deadline at the end of March,’ said Rightmove director Miles Shipside. ‘The result is a famine of suitable property and higher prices.’
The rise in British house prices had minimal impact on demand for the UK Pound, however. EU referendum uncertainty continues to weigh heavily on investor confidence. The Confederation of British Industry (CBI) cut growth forecasts to 2% for 2016 and 2017, down from 2.3% and 2.1% respectively. CBI argues that the UK will face an economic slowdown amid ‘Brexit’ uncertainty, which has already had a notable detrimental impact on sectoral growth.
CBI boss Carolyn Fairbairn said; ‘A dark cloud of uncertainty is looming over global growth, particularly around weakening emerging markets and the outcome of the EU referendum, which is chilling some firms’ plans to invest. At present, the economic signals are mixed – we are in an unusually uncertain period.’
Euro (EUR) Exchange Rate Forecast to Hold Steady despite USD Weakness
Given the complete absence of influential domestic data, with Ireland’s Trade Balance data the only European publication, Euro exchange rates are trending comparatively statically versus major peers. A slight err towards appreciation, however, can be linked to US Dollar weakness.
The Euro’s outlook remains clouded as a ‘Brexit’ vote in the UK is thought, by many, to have a more detrimental impact on Europe than the UK. This is because of the high chance that other smaller EU countries may emulate the UK amid growing disillusionment with the European Union.
Also weighing on investor confidence is uncertainty as to how the European Central Bank (ECB) will approach future policy decisions. With inflation growth remaining subdued and growth in the Eurozone still muted, there is a high chance that ECB policymakers will vote to ease policy further within the next few meetings.
However, the relationship between the ECB and Germany frayed as the currency bloc’s most influential nation is increasingly unhappy with the accommodative policy stance of the ECB. This could prove a sticking point if the ECB does indeed opt to cut rates further into negative territory. The prospect of the German government calling for a referendum on its continued Eurozone status would be a significant blow for hopes of a closer union.
US Dollar (USD) Exchange Rate Forecast to Soften as Safe-Haven Demand Cools
Market sentiment was generally damp last week thanks to global equity market volatility and falling commodity prices. This allowed the US Dollar to appreciate versus some of its major peers, albeit fractionally.
With crude oil prices rising and Asian stocks recovering recent losses, however, risk-appetite improved. This saw reduced demand for the US Dollar. However, USD exchange rates have avoided a massive depreciation thanks to thin trading.
Even if we return to heightened safe-haven demand there is a good chance that the US Dollar will fail to sustain any significant gains. This is mostly in response to political uncertainty as the Presidential candidacy heats up. With controversial figure Donald Trump winning leadership of the Republican Party, concerns regarding future US foreign policy has dented trader confidence.
Trump has already foreshadowed difficult relationships with key global countries, stating recently that UK Prime Minister David Cameron’s comments about Tump, following the latter’s speech on temporarily banning all Muslims from the US, could sour the once firm Anglo-US relationship.
Speaking on UK TV earlier, Mr Trump said: ‘It looks like we’re not going to have a very good relationship, who knows. I hope to have a good relationship with him, but it sounds like he’s not willing to address the problem either.’
The Pound Sterling to Euro (GBP/EUR) exchange rate was trending within the range of 1.2658 to 1.2718.
The Pound Sterling to US Dollar (GBP/USD) exchange rate was trending within the range of 1.4330 to 1.4412 during Monday’s European session.