- Outlook of UK uncertain as major political parties remain in turmoil – Pound to Euro exchange rate remains on weaker footing
- Eurozone CPI forecast to strengthen in June – Single currency could benefit from higher inflationary pressure
- Doubts grow over robustness of US economy – Disappointing housing data further dented odds of 2016 Fed rate hike
- Market confidence diminished after BoE Carney speech – Pound dented by talk of imminent easing
UK Manufacturing PMI Impressed, Pound Holds Losses
With investors fixating on the likelihood of the Bank of England (BoE) unveiling additional stimulus measures in the near future, the Pound to Euro, US Dollar exchange rates remained trending in a softer position on Friday. GBP has so far failed to hold any fleeting gains recorded against EUR and USD in the wake of the UK’s unexpected decision to Brexit from the European Union.
Sterling failed to derive any benefit from the UK’s Markit Manufacturing PMI printing at 52.1 in June, up from 50.1 in May.
The data prompted this response from Markit economist Rob Dobson: ‘The headline PMI rose to a five-month high in June on the back of improved rates of expansion in both production and new order volumes. There were also signs that the trend in new export business was starting to pick up and a rebound in demand for capital goods – a key bellwether of broader investment spending.’
Given that this data was compiled before the EU referendum, it is likely that this show of strength in the sector may prove short lived.
The GBP EUR exchange rate was trending in the region of 1.1972 heading into the weekend. The direction the pairing takes next week largely depends on any Brexit related news emerging over the weekend.
Next week’s UK data is unlikely to have a significant impact on Sterling as the figures relate to a pre-Brexit landscape. That being said, it will be interesting to see what state the economy was in prior to the market-rocking referendum.
(Previously updated 08:00 01/07/2016)
US Manufacturing Data Bettered Forecast to Boost Dollar (USD)
Thanks to a better-than-expected Chicago Purchasing Manager Index the US Dollar (USD) made fresh gains against both the Pound (GBP) and Euro (EUR) on Friday morning. This would seem to bode well for the afternoon’s ISM Manufacturing report, with the suggestion of a more robust recovery within the world’s largest economy. As a result the Pound to US Dollar (GBP/USD) exchange rate was trending lower in the region of 1.3268.
(Previously updated at 5:00 on 30/06/2016)
Demand for the Pound Weakened in Response to Hint at BoE Easing
Bank of England (BoE) Governor Mark Carney did not offer any cause for confidence in the Pound (GBP), indicating that policy easing could be in store over the summer. The prospect of an interest rate cut prompted Sterling to slump across the board, allowing the Euro (EUR) and US Dollar (USD) to make renewed gains.
(Previously updated at 11:19 on 30/06/2016)
Both the Pound Euro and Pound US Dollar exchange rates rallied on Wednesday as Sterling edged higher across the board in response to speculation the UK might not invoke Article 50 and begin the formal process of detaching itself from the European Union.
Confidence in the Pound strengthened somewhat as markets awaited fresh commentary from Bank of England (BoE) Governor Mark Carney, even as the fallout of the EU referendum continued to shake up the British political landscape.
Pound to Euro Exchange Rate Strengthened ahead of BoE Speech
Political uncertainty continued to grip the UK on Thursday morning, with nominations for the Conservative party leadership bid set to close at lunchtime, while the opposition Labour party faces its own leadership contest. With a sense of doubt and anxiety dominating the outlook of the country there has been little reason for investors to particularly favour the Pound (GBP). Even so, ahead of a fresh speech from Bank of England (BoE) Governor Mark Carney this afternoon some residual optimism has seen Sterling avoid a renewed downtrend, for the time being.
Nevertheless, if Carney is not able to reassure markets in the same manner seen in the wake of the EU referendum result, the Pound could soon return to a bearish trend against its rivals. Although domestic ecostats remain of limited impact amidst the current atmosphere the negative implications of Brexit appear to be already filtering through, as Lee Hardman, Currency Analyst at MUFG, noted:
‘Evidence has already started to emerge that the UK economy appears set to slow sharply. YouGov Plc and the Centre for Economics and Business Research revealed overnight their daily tracker of consumer confidence “collapsed” to 104.3 from 111.9 earlier in June. It was their lowest reading of consumer confidence since May 2013. The head of YouGov reports stated that they expect consumer confidence to decline further as some of the consequences of Brexit kick in.’
Stronger Eurozone CPI Forecast to Boost EUR GBP Exchange Rate
Confidence in the Euro (EUR) improved somewhat in response to a better-than-expected German Unemployment Change figure, meanwhile. As the measure showed a larger dip in unemployment than investors had anticipated, this offered some reassurance in the robustness of the Eurozone’s powerhouse economy. This impression was furthered by stronger German Retail Sales figures for May, although speculation is still ongoing over the ability of the currency union to withstand the potential economic shock of a Brexit.
This afternoon’s Eurozone Consumer Price Index report for June could shore up demand for the single currency further, providing inflationary pressure is shown to have strengthened on the year. While the uncertainty stemming from the UK’s vote to leave the EU could potentially jeopardise progress towards the European Central Bank’s (ECB) 2% inflation target, a stronger showing would be nevertheless be received positively.
US Dollar (USD) Struggled to Maintain Gains as Odds of Fed Rate Hike Declined
Concerns over the strength of the US economy rose in response to Wednesday’s unexpectedly weak Pending Home Sales figure, which fell short of forecast to clock in at 2.4% rather than 4.6%. This provided further evidence that the domestic housing market is under increasing slowdown pressure, indicating that the world’s largest economy may not be in the position to weather the current bout of global economic uncertainty. As a result it seems increasingly unlikely that the Fed will be able to raise interest rates before the end of the year, particularly with the presidential election set to provoke additional market volatility in the coming months.
Safe-haven demand is likely to continue to support the US Dollar (USD) for the time being, although confidence could be dented by today’s US jobless claims report. A stronger Chicago Purchasing Manager Index for June may give investors greater incentive to pile into the ‘Greenback’, however, with any signs of robustness within the domestic manufacturing sector likely to boost confidence.
Current GBP, EUR, USD Exchange Rates
At the time of writing, the Pound to Euro (GBP/EUR) exchange rate was making gains around 1.2107, while the Pound to US Dollar (GBP/USD) pairing was trending narrowly at 1.3461.