With the latest UK data pointing at a marked slowdown in output post-Brexit, Pound to Euro, US Dollar exchange rate forecasts have been bleaker, with GBP extending its 2016 slump.
- UK trade and production figures failed to offer a rallying point to the Pound – Hopes in strength of domestic economy faded further
- Robust German trade surplus boosted appeal of single currency – Euro trended higher despite disappointing export figures
- Tightening US employment market pointed towards greater Fed hawkishness – USD supported by bets on 2016 interest rate hike
- NIESR GDP estimate puts additional pressure on Sterling – Suggestion of slowing growth diminished GBP exchange rates
GBP USD Exchange Rate Rallies as Fed Hike Bets Weaken
Confidence in the US Dollar crumbled on Wednesday as doubts over recent US productivity figures prompted investors to dial back the odds of a 2016 Fed rate hike. As a result the GBP USD exchange rate was able to regain some ground, trending higher in the region of 1.3029.
However, the Pound Euro (GBP/EUR) exchange rate remained weak, with the pairing tumbling -0.4% and slumping to a low of 1.1637.
(Previously updated at 8:44 on 10/09/2016)
Weaker GDP Estimate Weighs on GBP Exchange Rates
The appeal of the Pound deteriorated further in the wake of the NIESR GDP estimate, which proved weaker-than-forecast at 0.3% rather than 0.4%. This appeared to suggest greater slowdown in growth, exacerbating Brexit-based concerns. As a result the GBP EUR exchange rate remained on a downtrend around 1.1712, while the GBP USD pairing recovered some ground to trend in the region of 1.3010, thanks to disappointing US data.
With no UK data on the cards for Wednesday further Pound movement may be limited, although some medium volatility US releases (including MBA Mortgage Applications and the latest Crude Oil Inventories figure) may trigger GBP/USD exchange rate movement.
(Previously updated at 12:30 on 09/08/2016)
Pound to Euro, US Dollar exchange rates struggled as sentiment towards Sterling remained weak on Tuesday, with June’s raft of production and trade data offering little cause for confidence in the robustness of the domestic economy.
The GBP/EUR exchange rate hit a low of 1.1685 while the GBP/USD exchange rate softened to 1.2961.
Weak UK GDP Estimate Forecast to Weigh on Pound (GBP) Demand
After a rather quiet start to the week the Pound (GBP) began to fall back substantially against rivals on Tuesday morning, softening in anticipation of the latest UK trade and production data. Investors were not impressed by a better-than-expected BRC Like-For-Like Sales figure, which showed that consumers had continued to spend healthily in the wake of the EU referendum. As this recovery was largely attributable to good summer weather and heavy discounting, however, there was little reason for markets to pay it any heed. As Manufacturing Production failed to recover as much as hoped and the UK trade deficit widened further than forecast in June this prompted further selling for the Pound, suggesting that the domestic economy was on a weaker footing even before the Brexit shock.
This afternoon’s NIESR GDP estimate for the three months to July is likely to provoke further Sterling volatility, particularly if growth is predicted to have fallen significantly in response to Brexit-based uncertainty. If this seems to reflect the forecasts of the Bank of England (BoE) then the odds of further monetary loosening could be seen to increase, with James Nelligan, currency strategist at RBS, noting:
‘In our view, the problem isn’t the supply of credit, it’s the demand for credit and more easing will be needed later this year. This may potentially come in the form of looser fiscal policy at the Autumn Statement and/or further Bank Rate cuts (the lower bound is probably 5-10bps).’
Weaker-than-Expected German Exports Failed to Shore up GBP EUR Exchange Rate
Confidence in the Euro (EUR) was generally boosted on the back of June’s raft of German trade figures, with the Eurozone’s powerhouse economy demonstrating continued robustness. Germany’s trade surplus was found to have widened further than forecast from 21 billion to 24.9 billion Euros, suggesting that trade conditions remained positive. The single currency was prevented from going on a particularly bullish run, however, by a slightly disappointing recovery in exports, which rose just 0.3% as opposed to the 1.1% expected. This somewhat undermined the positivity of the figures, given the sharp contraction seen in May, but was not enough to prevent the Pound to Euro (GBP EUR) exchange rate losing further ground.
Support for the single currency is likely to be a little more limited ahead of Friday’s raft of high-impact domestic data, particularly if investors are prompted to favour the US Dollar (USD) in the meantime. While no change is expected from the finalised German Consumer Price Index for July the provisional second quarter GDP report is forecast to show a robust strengthening in growth. Should the German economy continue to demonstrate robustness this is likely to shore up the Euro, although persistent concerns over the health of the rest of the currency union could dampen sentiment somewhat.
Strong US Employment Data Continued to Support US Dollar (USD) Uptrend
Following up the better-than-expected Non-Farm Payrolls report, Monday’s US Labour Market Conditions Index proved encouraging for the ‘Greenback’. Signs that the domestic jobs market is continuing to tighten eased worries over the outlook of the world’s largest economy, also leading to increased speculation over the chances of the Federal Reserve raising interest rates before the end of the year. The Fed had previously indicated that stronger employment would be a crucial factor in determining the timing of its next rate hike, although negative global headwinds likely remain an obstacle to greater hawkishness. As a result the US Dollar struggled to maintain its initial buoyance, even though the Pound to US Dollar (GBP USD) exchange rate remained on a weaker footing.
Tuesday’s Wholesale Inventories report could encourage greater confidence in the ‘Greenback’, providing the result points towards rising demand. Falling inventories would suggest that confidence within the economy remains heightened, giving investors further reason to buy into the US Dollar at this juncture. However, with mixed expectations for the rest of the week’s US data the GBP USD exchange rate could regain some ground in the coming days.
Current GBP, EUR, USD Exchange Rates
At the time of writing, the Pound to Euro (GBP EUR) exchange rate was slumped around 1.1713, while the Pound to US Dollar (GBP USD) pairing was trending lower in the region of 1.2986.