Even in the absence of fresh opinion polls the mood towards the Pound remained muted ahead of the weekend, with investors still concerned by the uncertainty surrounding the election outcome.
While May’s UK manufacturing PMI proved better than forecast this was not enough to shore up GBP exchange rates for long.
Although growth in the sector remained robust it still showed a dip on the month, failing to dispel worries of a further slowdown in the domestic economy.
Confidence in the economy was boosted further by a significant upside surprise from the latest construction PMI, which leapt from 53.1 to 56.
However, given that the construction sector only accounts for a limited proportion of UK GDP the Pound struggled to capitalise on this bullish showing.
Jitters over the general election are likely to keep GBP exchange rates under pressure in the short term, with the prospect of a hung parliament still causing some nervousness.
Even if the Conservatives do secure an increased majority in next week’s election, though, this may not boost the appeal of Sterling for long.
As analysts at HSBC noted:
‘Politically, the currency remains vulnerable to a potentially acrimonious negotiation process with the EU and the lingering possibility of a ‘no deal’ outcome. Structurally, the renewed widening in the trade deficit is a recurring headache that requires more adjustment lower in GBP. Finally, there are some signs that the economy is losing traction, notably through slower consumer spending that has driven GDP growth lower.’
As the issue of Brexit continues to hang over the UK economy the Pound is likely to remain on a generally weaker footing against the majors.
An unexpected upward revision to Italy’s first quarter gross domestic product buoyed confidence in the Euro, suggesting that the currency union as a whole is in stronger shape.
While the European Central Bank (ECB) looks set to leave monetary policy unchanged at its June policy meeting markets are hopeful that policymakers could adopt a more optimistic outlook.
Even though inflationary pressure within the Eurozone is still somewhat underwhelming any indications of greater hawkishness from ECB President Mario Draghi could encourage investors to pile into the single currency.
On the other hand, if Draghi reiterates the central bank’s unwillingness to discuss tapering the quantitative easing program the Pound Euro exchange rate could find a rallying point.
Demand for the US Dollar, meanwhile, picked up in the wake of an unexpectedly large uptick in the ADP employment change index.
This seemed to bode well for May’s non-farm payrolls report, suggesting that forecasts for a headline figure of 180,000 could be on the conservative side.
Solid labour market data could boost the odds of an imminent Federal Reserve interest rate hike further, giving investors fresh reason to favour the ‘Greenback’.
If wage growth fails to show an improvement on the month this may dampen the appeal of the US Dollar somewhat, although the Pound US Dollar exchange rate looks set to extend its losses in the coming days regardless.
Current GBP EUR USD Interbank Exchange Rates
At the time of writing, the Pound Euro exchange rate was slumped in the region of 1.1459. Meanwhile, the Pound US Dollar exchange rate was trending lower around 1.2859.