Investors Remain Wary of Volatile Pound (GBP) Before Services PMI
The Pound’s apparent climb against the shared currency seems to be on pause for the time being as the pairing fluctuates in the region of 1.2515. Investors may be hesitant to support the Pound too strongly ahead of this morning’s services sector PMI as the currency’s volatility could cause it to move at just the slightest of stimulus.
As the UK’s most vital industry, services PMI printing at the forecast 53.5 or higher is likely to send the Pound upwards, whereas anything lower could damage Sterling confidence once more.
The Pound Sterling to Euro (GBP/EUR) exchange rate began climbing yesterday after striking a 16-month low on a record high UK deficit and a lack of solutions to the ongoing UK steel industry crisis.
HMRC ‘Committed’ in Pursuing Offshore Tax Evaders, Sterling Confidence Buoyed
Her Majesty’s Revenue and Customs (HMRC) quickly reacted to revelations of the historic ‘Panama Papers’ leak yesterday, claiming that they have already received information on acts of financial wrongdoing and will continue to pursue tax evaders.
The leak from a Panama-based law firm supposedly contains details of secretive and covered up money deals from the last 40 years. The scandal took headlines by storm yesterday as various names involved in the world’s governments appeared to be mentioned in reports of money laundering and tax avoidance.
With an assumption from analysts and investors that failed tax payments may return to the UK economy, Pound Sterling was able to gain slightly against the shared currency after being dragged to lows not experienced since November 2014 last week.
GBP/EUR’s low weekend level of 1.2487 was followed by upward movement of around 0.5% following the eruption of Panama Papers stories. At the time of writing, the pair fluctuated in the region of 1.2540.
While the risk-off movement the scandal influenced in the global economy is set to benefit the investments of many ‘safe-haven’ and non-risky currencies, it seems the Pound may have been one of the later beneficiaries.
Details and the reliability of the papers are still being called arguable by some analysts and official bodies, but it is speculated that the amount of UK-related tax evasion brought to light in the leak could bolster HMRC reserves considerably if recovered.
Euro (EUR) Dips Movement Amid Underwhelming Eurozone Data
Despite a strong period for the Euro last week, the strengthened currency was not able to hold back the Pound’s Panama Papers-related excitement.
While Sterling’s climbs aren’t as bullish as the Euro’s had been last week, the Pound’s heightened volatility and weakness as of late means that the movements are notable.
Last week’s German and Eurozone CPI prints had suggested that inflation in the Eurozone was bettering as expected, improving investor confidence.
Unfortunately, Eurozone ecopolitical news this week has been less impressive. While the monthly unemployment rate for February printed at the expected 10.3%, (an improvement from the previous figure of 10.4%) Sentix investor confidence data undercut projections of 7 considerably, printing at 5.7, only 0.2 points ahead of March’s figure of 5.5.
European Central Bank Chief Economist Peter Praet also spoke on Monday. He issued new warnings that if the ECB’s current easing methods fail, the central bank would act again and prove their determination to stimulate the economy regardless of what it takes.
Inflation in the Eurozone economy has missed targets for three years.
Pound Sterling to Euro (GBP/EUR) Exchange Rate: Ongoing Crises Cause Foggy Forecasts
The Panama Papers scandal is being felt around the globe with major names from Europe being invoked in the media since the leak broke and potentially more coming out in the coming days and weeks.
Following global concerns on how big a percentage of an economy’s wealth is owned by governments, the possibility that government members could be confirmed as tax evading is likely to spark public outrage for an uncertain amount of time.
As for how this effects currency pairs, that will largely depend on which nations (and by extension which currencies) are likely to benefit from hunting tax evaders, or which nations could be seen as the most guilty.
The situation is ongoing and stances held on the legitimacy of the entire leak are likely to vary. As a result, a risk-off attitude is likely to be maintained by many investors until clarifications and solutions occur.
In the event the situation calms quickly, the score of March’s UK Services PMI later today is likely to cause influence in the GBP/EUR pair. Failing that, German factory orders and Eurozone retail sales prints are also due for release this morning and may cause movement.
However, due to current economic uncertainty across the board, it’s possibly that only political movement and statements will notably influence the currencies.