- Pound Sterling (GBP) erased 2016 losses versus the US Dollar
- Weak British manufacturing output weighs on Sterling
- US Dollar weakness supports Euro appreciation
- UK construction data forecast to provoke Sterling volatility
GBP/EUR, GBP/USD Exchange Rates Trend Narrowly ahead of UK Data
The Pound Sterling to Euro and Pound Sterling to US Dollar exchange rates were trending within a limited range on Wednesday morning.
As traders await the UK Construction PMI, which is predicted to show output slowed in April, the UK Pound is trending within a tight range against the Euro and US Dollar. If construction output does indeed disappoint to the downside, the added pressure on the services sector will likely see sentiment towards the Pound dampen considerably.
Pound Sterling (GBP) Exchange Rates Cool from Intraday Highs
The Pound Sterling to Euro (GBP/EUR) exchange rate softened by around -0.5% on Tuesday afternoon, whilst the Pound Sterling to US Dollar (GBP/USD) exchange rate cooled by around -0.3%.
As traders digest the disappointing British manufacturing data, the UK unit has dropped from intraday highs to post losses versus both the Euro and the US Dollar. The British asset is still holding a comparative position of strength, however, as ‘Brexit’ fears continue to ease.
Pound Sterling (GBP) Exchange Rates Gain despite Disappointing Domestic Manufacturing Data
Thanks to easing ‘Brexit’ concerns, the British unit advanced versus most of its major peers on Tuesday morning. In particular, the Pound strengthened versus the US Dollar; erasing 2016 losses after slower-than-forecast US manufacturing output weighed heavily on demand for the ‘Buck’ (USD).
Sterling continues to advance amid increased speculation that the UK will vote to remain a member of the European Union on June 23rd. In support of the ‘remain’ campaign, ex Chancellor of the Exchequer Alistair Darling warned that the UK risks losing -£250 billion a year in trade if it leaves the European Union.
‘Leaving the single market would be catastrophic for our businesses and our families who would be paying more and suffering from a weaker economy,’ Darling said. ‘Those wanting to leave the EU want to pull Britain out of the Single Market, which would mean introducing tariffs and barriers to our trade and putting billions of vital trade at risk.’
As Tuesday’s European session progressed, the UK unit dropped from intraday highs after domestic data produced less-than-ideal results. The British Pound is still holding a position of strength versus the majority of its rivals however. The only notable losses come against the Euro (EUR) and Swiss Franc (CHF).
The UK Manufacturing PMI was forecast to show output advanced from 50.7 to 51.2 in April. However, the actual result showed an unexpected contraction to 49.2.
Rob Dobson, Senior Economist at Markit said: ‘The UK Manufacturing PMI fell below its critical 50.0 mark for the first time in over three years in April, highlighting a further deepening of the sector’s downturn at the start of the second quarter. On this evidence manufacturing production is now falling at a quarterly pace of around 1%, and will likely act as a drag on the economy again during the second quarter and putting greater pressure on the service sector to sustain GDP growth.’
US Dollar (USD) Exchange Rates Struggle on Weak Manufacturing, China Concerns
The US Dollar continues to struggle versus its major peers after losses were initiated during yesterday’s North American session following weaker-than-anticipated domestic data. April’s ISM Manufacturing index was forecast to tick lower from 51.8 to 51.4, but the actual result fell to 50.8.
Most analysts predict that the US manufacturing sector will stabilise, however, especially given that the April data showed an influx of new orders.
‘With the value of the Dollar having moved lower since the beginning of the year and with financial stress largely having abated, we expect manufacturing output to move largely sideways this year before eventually returning to a modest positive trend,’ said Rob Martin of Barclays Research.
Also weighing on demand for the US asset today was disappointing data out of China. With external risks still playing a hand in the Federal Open Market Committee (FOMC) policy outlook, any sign that China’s economy is struggling will likely provoke US Dollar losses.
China’s economic data showed that April’s Manufacturing PMI dropped further into contraction territory, falling from 49.7 to 49.4 despite the market consensus of a slight rise to 49.8.
‘The fluctuations indicate the economy lacks a solid foundation for recovery and is still in the process of bottoming out. The government needs to keep a close watch on the risk of a further economic downturn,’ said He Fan, chief economist at Caixin Insight Group.
Euro (EUR) Exchange Rates Advance after ECB’s Coeure Speech
The combination of US Dollar weakness and a positive speech from the European Central Bank (ECB) Executive Board Member Benoit Coeure has caused the single currency to rally versus a number of its major peers.
Coeure stated that the central bank would not cut rates to ‘absurd’ levels, but reiterated the positive impact of negative rates thus far.
‘To be sure, this would not necessarily remain true if the deposit facility rate were to be set at significantly lower levels. But this is why I have said elsewhere that we would not take it to absurdly low levels. If anything, the smooth changeover to negative rates has only underlined the adaptability of market participants to this new environment, especially the money market funds industry.’
Euro gains may be tested further as the session progresses, however, after the European Commission lowered its 2016 Eurozone GDP and inflation forecasts.
‘The economic recovery in Europe continues but the global context is less conducive than it was,’ Commission Vice President Valdis Dombrovskis said. ‘Future growth will increasingly depend on the opportunities we create for ourselves.’
The Pound Sterling to US Dollar (GBP/USD) exchange rate was trending within the range of 1.4656 to 1.4770.
The Pound Sterling to Euro (GBP/EUR) exchange rate was trending within the range of 1.2658 to 1.2751 during Tuesday’s European session.