With the ECB leaving policy unchanged, the Pound Euro (GBP/EUR) exchange rate fell back to 1.17. The Pound US Dollar (GBP/USD) exchange rate, meanwhile, was largely unchanged from the day’s opening levels.
- GBP ignores falling retail sales – BRC figures show -0.9% drop
- EUR retail PMIs improve – Eurozone index returns to growth
- US ISM composite approach weakens USD – Result could alter Fed hike expectations
- GBP, EUR, USD forecast – ISM to weigh on USD exchange rates
GBP EUR Exchange Rate Falls to 1.17 Today
The Pound Euro exchange rate tumbled following the European Central Bank’s (ECB) decision to leave interest rates on hold and its quantitative easing programme unchanged.
While ECB President Mario Draghi wasn’t exactly cheery about the Eurozone’s economic prospects, the lack of action was enough to send the Euro higher across the board.
US news came in better-than-expected, with initial jobless claims and continuing applications for unemployment benefits falling by more than anticipated.
The Pound US Dollar exchange rate was accordingly left trending in the region of 1.3306, down over 0.2% on the day’s opening levels.
(Previously updated 10:00 GMT 08/09/2016)
The worst UK retail sales performance since April has failed to prevent Pound Euro and Pound US Dollar exchange rates advancing, with both GBP/EUR and GBP/USD standing firm following Monday’s bull run.
The Euro, meanwhile, has found support from strong retail PMIs, while the US Dollar remains soft due to the approach of key economic data. While Sterling has remained in demand today, the currency’s gains have been limited in comparison to the upswing recorded after the UK’s Services PMI trumped forecasts at the beginning of the week.
Euro Soft but Advancing; Will ECB Change QE Parameters?
While the odds of changes to interest rates at today’s ECB meeting are low, markets are more divided over other courses of action the Governing Council could take. Some have suggested that the March 2017 deadline for the quantitative easing programme could be extended (it has already been extended by six months once before; this month marks the initial targeted end of the programme). However, analysts are not entirely convinced, because pushing the end date back would force the ECB to weaken its asset purchasing criteria in order to avoid running out of eligible bonds to buy.
(Previously updated 09.45, 08/09/16)
Euro Remains Soft after German Production Data Slumps
The Euro is struggling around opening levels versus the Pound and US Dollar today after a dire performance from the latest German data. Industrial production was expected to slow by -1% to 0.1%, but instead slumped to -1.5% on the month. On a yearly basis production dropped from 0.9% to -1.2%, which is -1.4% below forecasts.
(Updated 08.47, 07/09/2016)
US Dollar Tumbles after ISM Non-Composite Slides Towards Contraction
Bets of a rate hike in December have taken another hit today thanks to a significantly worse-than-expected performance from the ISM non-manufacturing composite index for August. The index weakened 4.1 points to 51.4; a considerable surprise given that forecasts were for a marginal tick lower from 55.5 to 55. Unsurprisingly, the US Dollar has crashed versus the Pound and the Euro.
Falling UK Retail Sales Blamed on Olympics, Pound (GBP) Advances
UK retail sales showed an unexpected decline in April, although the news has not weakened the Pound. August retail sales figures, released by the British Retail Consortium (BRC), showed that like-for-like sales declined -0.9% last month. Forecasts had been for growth of 1.4%, up from 1.1% previously.
The unexpectedly poor performance has not created tailwinds for the Pound, however, as Brexit uncertainty has not been blamed for the decline. The weakest performance from retail sales since April has been attributed to consumers either staying inside to watch the Olympics or being lured away from shops by sunny weather. Watches and jewellery continued to see growth for another month as visitors from overseas took advantage of the weak Pound to snap up luxury goods.
According to BRC Chief Executive Helen Dickinson;
‘A month of extraordinary achievement for Team GB certainly produced a feel-good effect and consumer confidence was up on July, but that generally didn’t translate into extra sales. Consumers were enticed towards leisure and outdoor activities rather than shopping, although food did post its strongest performance in more than two years, fuelled by demand for picnic, barbeque supplies and celebratory drinks.’
Euro Soft despite Strong Retail PMIs and Steady GDP Figures
The latest run of strong PMIs will be a welcome sight for economists after yesterday’s disappointing services and composite scores from Germany and the Eurozone. Today’s retail measures have all improved greatly, although having risen from 40.3 to 43.2 leaves the Italian retail sector firmly in contraction. The German, French and Eurozone retail PMIs all rose by around 2 points, which saw the Eurozone measure re-enter growth territory.
The German construction index, meanwhile, has held steady at 51.6.
The Euro had weakened at the beginning of the session thanks to falling German factory orders. Orders did increase on the month, growing 0.2% rather than posting a continuing (if slowed) contraction of -0.1%. However, the decline in yearly factory orders only softened to -0.7% from -3%, instead of ticking higher to -0.2%.
Eurozone GDP figures have also relieved, with the finalised forms reprinting at earlier estimates of 0.3% on the quarter and 1.6% on the year. Government spending and household expenditure have weakened further-than-expected, with the former growing just 0.1% and the latter advancing 0.2%. The Euro remains soft overall.
US Dollar Falls Ahead of Key ISM Non-Manufacturing Composite Index
Another key economic measure that could influence the Federal Reserve’s next interest rate decision is due out later today. As a result, the US Dollar is firmly in negative territory as investors await the ISM non-manufacturing composite. The report is forecast to weaken from 55.5 to 55, but US data of late has tended to largely disappoint or exceed forecasts rather than meeting market expectations.
Meanwhile, Republican presidential candidate Donald Trump has further unnerved the markets after attacking the Federal Reserve for leaving interest rates at low levels. Trump claimed loose monetary policy had been implemented to help President Obama and that the Fed wouldn’t raise interest rates, despite there being a strong case to do so, for political reasons.
When asked about interest rates by a reporter, Trump claimed;
‘They’re [the Fed] keeping the rates down so that everything else doesn’t go down. We have a very false economy. At some point the rates are going to have to change. The only thing that is strong is the artificial stock market.’
This has created further market consternation over the possibility of a Trump presidency as it suggests that relations between the government and the US central bank could become extremely fraught under his leadership.
Also weighing on the US Dollar was a more optimistic assessment of the Australian economy from the Reserve Bank of Australia (RBA), boosting appetite for the high-yielding Australian Dollar.
Pound, Euro, US Dollar Exchange Rate Forecast; All Eyes on US ISM Composite
The bulk of the day’s UK and Eurozone data has largely been released, leaving only US data on the calendar to influence exchange rates. The Markit US services and composite indices are unlikely to have much of an impact, given their proximity to the day’s tier one data.
Should the ISM perform as forecast, the US Dollar may not overly respond as a score of 55 still shows the economy is well into growth territory. However, should it weaken further-than-expected, mirroring the performance of last week’s ISM manufacturing index, the US Dollar will continue to depreciate on falling expectations of a rate hike from the Fed before the end of the year.
Current GBP, EUR, USD Conversion Rates
The Pound Euro (GBP EUR) exchange rate was trending in the region of 1.1948 during yesterday’s European session, with the Pound US Dollar (GBP USD) exchange rate trading around 1.3338.
The Euro Pound (EUR GBP) exchange rate was trending around 0.8368 and the US Dollar Pound (USD GBP) exchange rate was trending in the region of 0.7498.