US Consumer Prices Disappoint, USD Remains Positive
Because of the weak state of the ‘Greenback’ after yesterday’s developments, the US Dollar has remained largely impervious to the weakening effects of today’s disappointing CPI results. Non-core inflation unexpectedly declined to 2.2%, while the core index slipped to 0.9% against predictions of a rise to 1.1%.
The USD is making strong gains on GBP and small advances on EUR.
Bank of England Hold Interest Rates, Jeremy Corbyn Gives Pro-EU Speech
The latest Bank of England (BoE) policy meeting has yielded exactly what markets were expecting; a continued rate freeze for the 85th consecutive month. The accompanying statement largely reiterated the Monetary Policy Committee’s (MPC) previous views.
In other headline UK news, Labour party leader Jeremy Corbyn has given a speech declaring his – and the Labour party’s – support of the European Union. Corbyn, who has been heavily critical of the European Union in the past (he voted against joining in 1975), admitted that his view had changed and that a reformed EU was the best option moving forward. Pro-EU campaigners will be hoping that the full support of the Labour party and its leader will help sway undecided voters ahead of the June 23rd referendum.
GBP to EUR, USD Softer before BoE Decision
With the Bank of England’s (BoE) latest interest rate decision looming, the Pound softened against both the Euro and US Dollar.
Sterling slipped by over 0.3% against its major rivals amid concerns the BoE will remain dovish with regards to the future timeline for interest rate adjustments.
However, if this week’s positive UK inflation data encourages the BoE to be more optimistic the Pound could reapproach the 1.26 level against the Euro.
Pound Extends Bullish Gains after Eurozone Production Figures Fall Below-Forecast
February production figures for the Eurozone have shown a greater-than-expected decline in activity, allowing the Pound to extend a bullish lead. On the month industrial production slowed from 2.9% to 0.8%, -0.4% further-than-expected, while annual production dropped from 1.9% to -0.8%, ten basis points further-than-forecast.
Although GBP/EUR remains bullish, the overall state of Eurozone industrial production remains strong. After January’s strong rise, production remains sharply higher than the previous year, suggesting the sector could be a strong driving force for economic growth in Q1.
International Monetary Fund Issues Serious ‘Brexit’ Warning
A ‘Brexit’ could cause ‘severe global damage’, according to the International Monetary Fund (IMF). Releasing their latest World Economic Outlook report, the Fund cut UK growth forecasts, partially blaming the uncertainty regarding the UK’s EU referendum.
This is the first time that the Fund as a body has issued a warning regarding the impact of a ‘Brexit’, which it claims is one of the biggest risks to the global economy.
Chancellor George Osborne has stated that, ‘The IMF has given us the clearest independent warning of the taste of bad things to come if Britain leaves the EU,’ although Chief Executive of the Vote Leave campaign group, Matthew Elliot, claimed, ‘The IMF has talked down the British economy in the past and now it is doing it again at the request of our own.’
Nigel Farage has countered that, ‘the IMF was wrong when it supported the Euro, wrong when it failed to predict the global recession and is wrong now it is trying to scare the British people,’ while David Milliband commented, ‘This is a stark warning that should ring loudly in the ears of families and businesses across the country. There is a storm on our horizon. We can hear the thunder if we are willing to listen. But it is in our power to protect ourselves.’
In other ‘Brexit’ related news, the latest poll by the ICM gave the ‘leave’ campaign a 3% lead on the ‘remain’ campaign. 45% of those surveyed plan to vote to exit the EU while 42% think Britain should remain part of the Union.
- UK Consumer Price Index beats forecast
- Final German CPI prints as expected
- USD bearish ahead of latest IMF growth forecast
- Low impact UK data tomorrow could see sentiment dominating Pound
Today’s UK inflation data has given GBP/EUR and GBP/USD a significant boost after showing a better-than-expected rise. Meanwhile, the Euro (EUR) has strengthened verses the US Dollar (USD) thanks to confirmation of German Consumer Price Index growth in March.
An impending global growth forecast from the International Monetary Fund (IMF) is keeping the ‘Greenback’ weak against the Pound (GBP) thanks to the Federal Reserve’s new globally-focussed monetary policy stance.
GBP/EUR Advances on Strong Consumer Price Index Figures
Economists have welcomed today’s inflation data for the UK, which saw core consumer prices rise from 1.2% to 1.5% on the year, beating forecasts of 1.3%. The non-core index increased from 0.3% to 0.5%, also bettering predictions of a 0.1% uptick to 0.4%. The figures show the highest rate of inflation, as measured by the CPI, since December 2014, while core inflation is the strongest it has been since October 2014.
There has already been speculation that the strong figures could motivate the Bank of England (BoE) to increase interest rates sooner than currently projected. However, Fidelity International’s Investment Director for Personal Investing, Maike Currie, believes the data will not affect the Monetary Policy Committee (MPC):
‘Today’s increase is unlikely to spur the Bank of England into considering raising interest rates on Thursday, with widespread consensus that this week will see the 85th consecutive month that the bank keeps interest rates on hold at their emergency level of 0.50%.’
However, Samuel Tombs from Pantheon Macroeconomics believes that, while there won’t be a rate hike any time soon, the Bank of England will be encouraged to tighten policy before the 2020, as many analysts currently predict:
‘Inflation pressures are continuing to build, challenging the consensus view in the markets that the MPC will leave interest rates on hold until the end of the decade.’
The Euro is also bolstered by positive inflation data, with the final German Consumer Price Index holding steady at initial estimates of 0.8% on the month and 0.3% on the year. This has allowed the common currency to strengthen against several of the majors, including the US Dollar, although the Pound’s strength has kept GBP/EUR on the rise.
Investors Await IMF Global Growth Forecast, GBP/USD Advances
Sentiment toward the US Dollar is weak today thanks to the approach of the latest International Monetary Fund World Economic Outlook. Economists are widely expecting the report to reveal a downgrade in growth forecasts, which will likely soften the ‘Greenback’ (USD) even further.
Since Janet Yellen signalled that the Federal Reserve should focus on global economic conditions despite the strength of the US economy, investors have given greater heed to global developments when anticipating the future path of US monetary policy. A weakening outlook will further depress the chances of monetary tightening by the Fed.
News that small business confidence in the US fell to a 2-year low last month has further weakened the ‘Greenback’. The optimism index, compiled by The National Federation of Independent Business (NFIB), dropped to 92.6, moving even further below it’s long-term average of 98.
Pound Sterling to Euro, US Dollar Exchange Rate Forecast: US Data Could Further Strengthen GBP
With the day’s UK data already released, it remains to be seen whether a more detailed analysis of the inflation figures will undermine the positive impact of the headline numbers. The approaching IMF global outlook could depress the US Dollar further if it is as downbeat as analysts imagine, allowing GBP/USD to advance further. Talks over the Greek bailout could favour the Pound if investors believe a resolution is a distant prospect, or boost the Euro if a deal seems closer to being reached.
Tomorrow, there is little data due from the UK, although the Bank of England Credit Conditions Survey may provoke movement. The continued tax scandal and the British steel industry crisis could also see sentiment driving exchange rates again tomorrow.
Eurozone industrial production figures maybe the main driver of Euro movement, although French and Spanish inflation data could also aid or hinder the common currency.
A slew of data from China during the Australasian session could affect the US Dollar if it softens or firms the global outlook before high-impact Retail Sales figures are released.
Current GBP, EUR, USD Conversion Rates
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trading in the region of 1.2519, while the Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending around 0.7986.
The Pound to US Dollar (GBP/USD) exchange rate is currently trending around 1.4302, with the US Dollar to Pound (USD/GBP) exchange rate trading near 0.6991.
The Euro to US Dollar (EUR/USD) exchange rate currently trades in the region of 1.1421, while the US Dollar to Euro (USD/EUR) exchange rate is trending around 0.8751.