- Pound dented by weaker-than-expected UK PMIs – Brexit shock shown to have negatively impacted economic growth
- Stronger Eurozone data failed to encourage Euro demand – Investors remained concerned by increasing fault lines within the currency union
- US Dollar buoyed by positive manufacturing data – Strength of world’s largest economy nevertheless remained under debate
- GBP USD exchange rate forecast to fluctuate ahead of Fed meeting – Guidance on monetary policy likely to drive ‘Greenback’ volatility
Stronger GDP Fails to Boost Pound Demand
The Pound Euro and Pound US Dollar exchange rates were little changed following the publication of the UK’s latest GDP data.
On the quarter the UK economy expanded by 0.6%, beating forecasts for a result of 0.5%.
While the data was better-than-expected, the data largely related to the pre-Brexit period and therefore lent Sterling little support.
GBP EUR was left trending in the region of 1.1938 while GBP USD was trading around 1.3128.
(Previously updated 09:00 27/07/2016)
Pound Dips Ahead of UK GDP Report
With the UK’s second quarter growth report looming, the Pound Euro exchange rate eased slightly lower on Wednesday to trend in the region of 1.1944.
As the data largely relates to the post-Brexit period, an as-forecast result is unlikely to have much impact on Pound Sterling trading. However, a worse-than-expected outcome could send the British currency spiralling lower against both the Euro and US Dollar.
(Previously updated 26/07/2016)
Hints of BoE Stimulus See GBP/EUR Hit 1.18
The Pound to Euro, US Dollar exchange rates declined on Tuesday as investors responded to recent comments from Bank of England Policymaker Martin Weale.
In a sudden change of stance, Weale now supports the case for immediate stimulus.
According to the Financial Times: ‘The new stance of Martin Weale, an independent member of the Bank of England’s Monetary Policy Committee, all but guarantees that the central bank will announce a package of stimulus measures to fight a post-referendum downturn at its August 4 meeting. […] Mr Weale also made it clear monetary policy would not boost the economy straight away, so any action would not save the UK from a recession if growth is beginning to shrink.’
The Pound Euro exchange rate was left trending in the region of 1.1890.
Tomorrow’s Q2 GDP report is likely to be the next cause of notable Pound to Euro exchange rate movement. Germany is also due to publish it’s GfK Consumer Confidence gauge.
(Previously updated 26/07/2016)
Weak Business Optimism Not Enough to Reverse Pound (GBP) Uptrend
The strength of the Pound (GBP) was eroded somewhat on the back of the latest CBI Industrial Trends Orders report. Particularly concerning to investors was the news the Business Optimism Index had plummeted from -5 to -47 in the wake of the EU referendum result, which suggested that confidence had been badly dented. Nevertheless, the GBP EUR and GBP USD exchange rates remained on a narrow uptrend towards the close of Monday’s European session.
(Previously updated at 10:31 on 25/07/2016)
Even though recent UK data has been largely disappointing, the Pound has been making fresh gains against the Euro and US Dollar, with market sentiment somewhat improved at the start of the week.
Shockingly Weak UK PMIs Weighed on Pound (GBP) Outlook
Ahead of the weekend the Pound (GBP) was pushed back onto a bearish trend by a raft of flash PMIs for July; the first gauge of the domestic economy post-Brexit. The measures were not encouraging for investors, with the Manufacturing, Services and Composite PMIs all falling sharply into contraction territory in the aftermath of the surprise referendum result. This did not seem to bode overly well for the health of the UK’s economic resilience, with growth momentum faltering to levels not seen since the wake of the financial crisis. Particularly concerning was the weaker-than-expected Services PMI, which dipped from 52.3 to 47.4. This was a significant cause for alarm given the significant portion of GDP that the sector accounts for.
In spite of rising odds that the Bank of England (BoE) will opt to cut interest rates at its next policy meeting Sterling was nevertheless on stronger form on Monday morning. Following the declines seen on Friday investors have been buying back into the softened currency, although the Pound remains decidedly vulnerable to downside pressure. Later today the CBI Industrial Trends Orders measure for July is likely to provoke some additional volatility for the Pound, with fresh weakness expected on the back of a further decline in domestic sentiment.
Pound to Euro Exchange Rate Strengthened despite Positive Eurozone Data
Despite upside surprises from the majority of the latest Eurozone PMIs the appeal of the Euro (EUR) was somewhat muted on Friday. While France showed an unexpected recovery to edge back into expansion territory and the German economy shrugged off the impact of Brexit-based market volatility, this was not enough to improve the outlook of the single currency. Markets were largely discouraged by the increasing prospect of imminent monetary tightening from the Federal Reserve. Even so, if the currency union continues to avoid the negative fallout of recent economic and political volatility, demand for the Euro could pick up once again.
A stronger-than-expected German IFO Business Sentiment Survey also failed to bolster the appeal of the common currency, despite confidence being somewhat more optimistic than investors had anticipated. Concerns remain over the future of the Italian banking sector, as well as the economic outlooks of several other members of the Eurozone, dragging on the strength of the Euro. As a result the Pound to Euro (GBP EUR) exchange rate could extend its gains further, with positive domestic data seeming to do little to distract investors from the question marks hanging over the longer-term integrity of the currency union at this juncture.
GBP USD Exchange Rate Forecast to Strengthen ahead of Fed Policy Decision
With market jitters on the rise again the US Dollar (USD) returned to an uptrend against rivals, despite signs of softness in the world’s largest economy. While the latest housing data and some manufacturing indicators pointed towards a less robust outlook, however, Friday’s US Manufacturing PMI encouraged greater confidence. Bettering forecast, the PMI climbed from 51.3 to 52.9 in July, suggesting that fears of an oncoming recession could be severely overstated. Consequently the Pound to US Dollar (GBP USD) exchange rate plunged back into the region of 1.3081.
Expectations point towards a recovery in the Dallas Fed Manufacturing Activity Index in the last month; a sign of strength that could boost the ‘Greenback’ further. Some weakness is anticipated ahead of this week’s Federal Open Market Committee (FOMC) policy meeting, with markets keen to see further communication from the central bank with regards to its tightening outlook. As researchers at Danske Bank noted:
‘We expect the FOMC to deliver a ‘wait-and-see’ message and to express that more time is needed for evaluating the full economic effects of ‘Brexit’. Having said this, US economic data has surprised strongly on the upside recently (economic surprise index at a multi-year high) and with equity markets holding up well, risks are skewed towards a slightly hawkish message and some USD strength.’
Current GBP, EUR, USD Exchange Rates
At the time of writing, the Pound to Euro (GBP EUR) exchange rate was making gains around 1.1971, while the Pound to US Dollar (GBP USD) pairing was trending higher in the region of 1.3141.