- Eurozone consumer confidence unexpectedly fell back – Euro supported by safe-haven demand
- Fed Chair Yellen failed to encourage market appetite for the US Dollar – Odds of 2016 interest rate hike remain in question
- Increasing Brexit worries to keep Pound on weaker footing – Investor uncertainty rises ahead of final referendum result
- Weaker Eurozone PMIs had little impact on markets today – Focus stayed on UK referendum
Poor Eurozone Data Failed to Boost GBP/EUR Exchange Rate
The latest round of Eurozone PMIs proved weaker-than-expected, suggesting that growth in the currency union faltered in June. However, thanks to worries over the result of the EU referendum the Pound (GBP) remained on a weaker footing against rivals towards the close of Thursday’s European session.
(Previously updated at 13:28 on 23/06/2016)
Brexit Worries Drive Pound (GBP) Lower Today as Polls Open
As the polls opened on Thursday morning the Pound (GBP) began to fall back, with investors continuing to hedge their bets against the possibility of a vote to leave the EU. Consequently the Pound to Euro (GBP/EUR) exchange rate was trending lower in the region of 1.3022, while the Pound to US Dollar (GBP/USD) pairing was slumped around 1.4752.
With some analysts predicting that the Pound could jump to 1.40 against the Euro and 1.55 against the US Dollar in the event of a vote to remain, we can expect significant Sterling volatility over the next 24 hours.
TorFX currency analyst Josh Ferry Woodard offered this prediction for the GBP/USD pairing: ‘if Britain elects to leave the EU then the Pound is expected to devalue towards 1.35 and potentially a 30-year low of 1.30. If the ‘Remain’ camp comes out on top then we are likely to see Sterling rise through 1.50 and head towards 1.55 over the next few weeks.’
Whatever the outcome, trading conditions are likely to remain fairly frantic heading into the weekend.
(Previously updated at 08:35 on 22/06/2016)
With referendum day finally here sentiment towards GBP is expected to turn bearish, while the Euro (EUR) and US Dollar (USD) could benefit from increased safe-haven demand, so is the Pound forecast to climb or fall?
Brexit Uncertainty Predicted Impact Pound Forecast Today
Referendum speculation remains the primary influence on the Pound (GBP) this week, with investors having showed signs of jitters ahead of today’s opening of the polls. Markets appeared to remain relatively confident of the chances for the ‘Remain’ campaign to emerge victorious on Friday, preventing Sterling from shedding too many of its recent gains against rivals. However, in spite of betting odds heavily favouring a vote to stay in the EU the opinion polls have continued to paint a closer picture. As a result, and in part due to the sharp relief rally seen at the start of the week, the Pound turned more muted on Wednesday.
With the polls opening today investors are likely to remain reluctant to buy back into the Pound, as markets will want to await the results of the vote before committing further to the currency. Greater volatility is expected on Friday when the final announcement will be made as to whether the UK will remain within the EU or not. Consequently trade on the Pound is expected to be fairly narrow, at least until investors start to get a sense of which way the vote has ultimately swung.
GBP/EUR Exchange Rate Trended Lower despite Weak Eurozone Confidence Survey
The finalised Eurozone Consumer Confidence figure for June unexpectedly slipped from -7 to -7.3 yesterday, putting some downside pressure on the Euro (EUR). Even so the single currency remained on a stronger footing against a number of its rivals, benefitting from hopes that the UK will not vote to leave the EU. A decline in the appeal of the US Dollar (USD) also lent support to the Euro, with investors increasingly dismissive of the chances of an imminent interest rate hike from the Federal Reserve.
Today’s raft of Eurozone Manufacturing, Services and Composite PMIs are likely to receive limited focus due to the dominance of referendum speculation. However, if growth across the currency union is shown to have weakened in June this could undermine confidence in the Euro, upping the likelihood of more European Central Bank (ECB) easing measures to come. Due to its relatively close association with Brexit-based risk the single currency could be weighed down if momentum is thought to be behind the ‘Leave’ campaign.
Yellen Commentary Failed to Shore up US Dollar (USD)
Confidence in the US Dollar remained generally week on Wednesday, weighed down by rather mixed domestic housing data. Although Existing Home Sales strengthened solidly in May this was counterbalanced by a disappointing April House Price Index. With growth in house prices slowing from 0.7% to 0.2% this seemed to suggest that the world’s largest economy remains under pressure from negative headwinds. As a result the Pound Sterling to US Dollar (GBP/USD) exchange rate continued to trend higher throughout the day, in spite of weaker Sterling demand.
Nevertheless, in comments to Congress Fed Chair Janet Yellen showed some continued confidence in the outlook of the US economy, as Philip Marley, Senior US Strategist at Rabobank, noted:
‘She said it is important not to overreact to one or two reports, and several other timely indicators of labour market conditions still look favourable. One notable development is that there are some tentative signs that wage growth may finally be picking up.’
While this did not seem to encourage investors to view a summer interest rate hike as any more likely the less dovish tone could help to support demand for the ‘Greenback’ in the near future. If safe-haven demand picks up further ahead of the referendum result the US Dollar also stands to benefit strongly.