- GBP Rebounding after CBI data – Survey showed massive drop in sentiment
- UK jobs data boosts Pound – Markets surprised by steady jobs growth
- Bank of England calms markets – Agents find little evidence of Brexit slowdown
- Euro awaits ECB meeting – Questions over how Governing Council will deal with rising bond prices
- GBP EUR, GBP USD Forecast – Busy data day to move exchange rates
GBP EUR, GBP USD Exchange Rates Drop then Rebound after Business Optimism Slump
The Brexit referendum result has dragged manufacturing sentiment lower, according to the Confederation for British Industry’s (CBI) latest survey data. The group’s business optimism index has crashed down to -47; it previously printed at -5 and was predicted to decline to -15. This is the second measure (the first being Friday’s Markit PMIs) to have shown a worse fallout from the vote than was expected. However, after weakening throughout the session, the Pound is now recovering again, registering strong gains against the Euro and the US Dollar.
(Last updated at 16.53 GMT 25/07/16)
Pound Euro, US Dollar Exchange Rates Fall as UK PMI’s Point to Slowing Growth
Both the Pound Euro and Pound US Dollar exchange rates quickly fell by more than -0.5% on Friday as investors responded to the latest UK Manufacturing, Services and Composite PMI’s. Losses later extended above -1%.
All gauges came in below forecast levels and were notably below the 50 mark separating growth from contraction. Manufacturing performed better-than-expected, however, although the index still fell into contraction territory.
Markets were more interested in the UK services index, however, as this sector accounts for over three-quarters of the UK’s annual economic output. The index was predicted to decline from 52.4 to 48.5, but in fact clocked in at 47.7.
The GBP EUR exchange rate was left trending in the region of 1.1925, down from a previous high of 1.2048.
(Previously updated 08:30 GMT 22/07/2016)
UK Retail Sales Flop, Pound to Euro, US Dollar Exchange Rates Decline
After rallying on Wednesday the Pound to Euro and Pound to US Dollar exchange rates declined in response to the latest UK retail sales figures.
Sales plummeted -0.9% on the month in June, taking the annual result down to 3.9%.
Following the report’s publication the GBP/EUR exchange rate was left trending in the region of 1.1975.
The pairing extended losses later in the European session, falling 0.5% to hit a low of 1.1922. With the European Central Bank (ECB) making no alterations to fiscal policy, further GBP/EUR exchange rate losses are likely.
Although many analysts expect the central bank to take action when it gathers in September, the fact that no action was taken this time out lent the Euro support.
Before the weekend, Manufacturing, Services and Composite PMIs for the Eurozone and its largest economies. Positive results could send GBP/EUR lower before the close of the European session.
(Previously updated 08:00 21/07/2016)
Markets were taken by surprise when the latest UK jobs data printed positively, allowing GBP EUR and GBP USD exchange rates to make bullish advances yesterday.
Although the Pound tanked in the immediate aftermath of the UK’s vote to Brexit from the European Union, the currency has since recovered ground, with GBP EUR advancing from 1.16 to 1.20.
UK Labour Market Data and Bank of England Help Pound Advance
Jobs and earnings data from May and June helped the Pound to make bullish advances during yesterday’s European session. Markets had been expecting weakened figures, with businesses believed to have halted taking on new staff due to the uncertainty of the then approaching Brexit referendum. However, only the weekly earnings excluding bonus figure for the three months to May disappointed forecasts.
The claimant count rate remained at 2.2% as expected, with the jobless claims change figure for June increasing by just 400; a rise of 3,500 had been predicted. The previous month’s figure was revised dramatically upwards, however, reaching 12,200. Thanks to a 176,000 increase in employment change – over 100,000 above forecasts – the ILO Unemployment Rate fell from 5% to 4.9%.
Further boosting the Pound were findings from Bank of England (BoE) agents, who revealed that there was little evidence of a post-Brexit slowdown in the UK economy. According to the report;
‘A majority of firms spoken with did not expect a near-term impact from the result on their investment or staff hiring plans. But around a third of contacts thought there would be some negative impact on those plans over the next 12 months. As yet there was no clear evidence of a sharp general slowing in activity.’
Euro Weakened ahead of European Central Bank Monetary Policy Meeting
Today’s European Central Bank (ECB) policy meeting was firmly on the minds of investors yesterday, keeping the Euro deep in negative territory against the Pound and within opening levels verses the US Dollar. Investors are not expecting the Governing Council to make any policy adjustments, with the Bank of America Merrill Lynch explaining;
‘Upon meeting on 21 July, resilient markets after the Brexit vote will, in our view, allow the ECB’s Governing Council to stop at simply delivering hints at an imminent additional layer of stimulus on 21 July, reserving hard announcements for September. This would coincide with the release of new inflation forecasts, which we think will continue to be inconsistent with a return to price stability within a reasonable policy horizon.’
Markets are particularly keen to hear how the European Central Bank will adjust the rules of its asset purchasing programme to combat the programme of falling bond yields. Yields move inversely to prices, so falling yields means bonds are becoming more expensive to buy, which could make them ineligible for quantitative easing. France has the largest share of the government debt market after Italy, with total debt on the market worth nearly €1,500 billion, yet over 30% of bonds are ineligible for purchase. Over half of Germany’s €1,000 billion plus bonds are ineligible, as are 40% of Finland’s and Austria’s, 37% of the Netherland’s and a quarter of Belgium’s.
BNP Paribas Investment Partners Economist Richard Barwell commented;
‘Uncertainty over how the ECB will tweak the rules in future and scepticism that it will run out of bonds to buy serve no positive purpose. Clarity now would be the perfect soft signal that officials are considering extending the programme beyond March 2017.’
Safe-Haven Demand Provides US Dollar Support
There was a strong appetite for secure assets yesterday. Commodity markets slumped, with the Bloomberg Commodity index starting the day down -1.08% and crude oil sliding. This all supported buying into the US Dollar, helping the ‘Greenback’ to advance away from opening levels against the Euro, although a slump against the Pound was recorded.
In terms of data, the latest MBA mortgage applications figure showed a -1.3% decline in applications, while crude oil inventories during the same period fell more-than-forecast, dropping -2342k barrels rather than -2000k.
GBP EUR, GBP USD Exchange Rate Forecast; Post-Brexit UK Borrowing, ECB Decision, US Claims Ahead
Today promises to see volatile trading for GBP EUR and GBP USD exchange rates, with plenty of data and developments on the calendar to generate currency movement.
The UK will release its final borrowing figures from before the referendum. Predictions here are for a weakening in net borrowing.
The European Central Bank meets to discuss monetary policy. No changes are expected, so any increases in stimulus measures would see the Euro plummet. The common currency could fall if Mario Draghi is particularly dovish in the subsequent press conference.
US data today includes the initial jobless claims and continuing claims figures, as well as existing home sales and the latest leading indicators.
GBP, EUR, USD Conversion Rates
The Pound Euro (GBP EUR) exchange rate traded in the region of 1.1973, while the Pound US Dollar (GBP USD) exchange rate trending around 1.3181 during yesterday’s European session.