- Pound exchange rates tick higher – Traders take advantage of Sterling’s comparatively weak trade weighting
- Euro exchange rates decline – German industrial output unexpectedly contracts
- US Dollar outlook mixed – Strong USD weakened trade but non-manufacturing bettered expectations
- Sterling forecast to hold gains – More suspended property investment funds could limit appreciation, however.
Despite the fact that several property investment funds have suspended trade amid fears of a Brexit panic selloff, Pound exchange rates advanced in the early stages of Thursday’s European session. A the session progressed, however, Sterling cooled from intraday highs as Brexit uncertainty returned to the forefront of trader focus.
On Friday morning the Pound was trending narrowly versus the Euro but edged higher against the US Dollar. The North-American asset is predicted to remain weak ahead of labour market data, especially after May’s Change in Non-Farm Payrolls headline figure was far lower-than-expected. Traders will want to see if this was the sign of a trend or a blip, as poor labour market conditions will further delay a Federal Reserve benchmark interest rate hike.
Sterling was little changed following the release of the UK’s GfK Consumer Confidence figure despite the report revealing a significant slide in sentiment.
According to The Financial Times: ‘There were sharp falls in all of the areas the survey considers, but the biggest deterioration was in the outlook for the general economic situation over the next 12 months, which fell by 15 points. Sixty per cent of respondents expect the economy to worsen, up from 46 per cent in June. There were big regional variations — confidence in the north of England fell the most, and in London the least. Around the country, the biggest drop was in households earning between £25,000 and £50,000.’
The GBP/EUR exchange rate was trending in the region of 1.1731.
(Previously Updated July 7, 2016 @ 16:47)
Pound Exchange Rates Forecast to Hold Gains following Positive Domestic Data
Whilst the fallout from Brexit has been notable, Pound exchange rates improved today. The recovery, albeit fractional, came in the face of a report from Lloyds which showed business confidence had slipped to a 4 ½ year low.
‘Current sentiment levels signal a clear weakening of the near-term economic outlook, which the Bank of England has already indicated a readiness to respond to,’ said Lloyds senior economist Hann-Ju Ho, noting that ‘one month’s results should be interpreted with care and much will depend on how confidence levels evolve.’
Sterling’s appreciation is mostly the result of consolidative trade as investors take advantage of the Pound’s weak trade weighting.
Also boosting the appeal of the Pound was positive Industrial and Manufacturing Production data for May. This suggests that the impact of uncertainty in the build up to the EU referendum had not negatively impacted all of the UK’s sectoral growth.
Pound exchange rates are not predicted to sustain a significant uptrend, however, after several more property investment funds suspended trade amid concerns of panic selling.
‘The problem with open-ended funds is you do start to have panic selling, so you really have no choice but to suspend the fund,’ said industry expert Jason Hollands. ‘There’s an inevitability to this now.’
June’s NIESR Gross Domestic Product Estimate remained unchanged at 0.6%. This does, however, suggests a marked slowdown from the previous quarter which has been attributed to the uncertainty caused by the Brexit vote.
Pound Exchange Rate Rallies against the Euro after German Industrial Production Unexpectedly Contracts
Whilst the negative impact of Brexit has not affected the Euro as much as Pound exchange rates, the single currency continues to struggle.
One of the major difficulties arising from market uncertainty is a rush to safe-haven assets. This has seen bond prices soar, reducing yields and limiting the impact of the European Central Bank’s (ECB) asset purchase programme.
During Thursday’s European session the Euro declined versus a number of its major peers following less-than-ideal domestic data.
On the year, May’s German Industrial Production contracted by -0.4%; well below the median market forecast 1.5% output growth.
‘The latest data only confirm the picture of a two-speed economy,’ said Frankfurt-based economist Carsten Brzeski. ‘While the domestic economy is booming, the former growth engines are weakening. With weaker industrial production, a traditional increase in investment becomes also less likely.’
Later today, the minutes from the ECB’s most recent monetary policy meeting will be published. This has potential to provoke volatility, although the meeting was held before the UK voted Brexit.
The Pound Sterling to Euro GBP EUR exchange rate was trending within the range of 1.1615 to 1.1740 during Thursday’s European session.
Pound Exchange Rates Climb versus US Dollar after US Trade Struggled against USD Overvaluation
With so much uncertainty surrounding Brexit and the European Union, markets have generally favoured safe-haven assets over the past few weeks.
The resultant US Dollar upsurge has caused many traders to fear overvaluation will cause long-term delays to a Federal Reserve cash rate increase.
The US Dollar has been strengthening for a considerable period given that the build up to the EU referendum caused traders to flock to safe-haven assets.
USD overvaluation has already had a detrimental impact on US trade after data showed that the deficit widened in May to -$41.1 billion.
‘Appreciation of the US dollar is weighing on the trade balance, making imports relatively inexpensive, while lowering the competitiveness of exports,’ said Emily Mandel of Moody’s Analytics.
June’s ISM Non-Manufacturing Composite bettered expectations, but the high valued US Dollar was at the forefront of trader focus, so the positive results had minimal impact on USD exchange rates.
The Federal Open Market Committee (FOMC) minutes from the most recent policy decision was unsurprising. The call for the need to be patient ahead of the Brexit vote transpired to be prudent.
‘Members generally agreed that, before assessing whether another step in removing monetary accommodation was warranted, it was prudent to wait for additional data on the consequences of the UK vote,’ according to the minutes.
The Pound Sterling to US Dollar (GBP USD) exchange rate was trending within the range of 1.2903 to 1.2998 during Thursday’s European session.