Pound Sterling to Euro (GBP/EUR), Pound Sterling to US Dollar (GBP/USD) and Pound Sterling to Canadian Dollar (GBP/CAD) exchange rates were all trending in a narrow range at the start of Friday’s European session ahead of UK Construction Output, Canadian Net Change in Employment, Unemployment Rate and US University of Michigan Confidence stats.
The Pound Sterling slipped in Thursday’s session when Bank of England (BoE) Governor Mark Carney spoke in Sheffield. Carney commented on the topic of interest rate hikes and took a surprisingly dovish tone.
Billed the ‘unreliable boyfriend’ of central banking, Carney did his usual trick of backtracking, despite giving a more optimistic speech on Tuesday. Market’s are finding it increasingly difficult to know where they stand with conflicting reports coming from the BoE on a regular basis.
Some policymakers have suggested that the central bank will need to hike interest rates soon in an attempt to combat low inflation, whereas Carney now suggests that global deflation is likely to keep rates lower for longer—a contradiction from his earlier speeches where he suggested the bank will look through lower consumer prices and hike rates anyway.
Carney stated: ‘In an environment of low rates everywhere, even bank rate of half a percent might look high-yielding. And the fear of a bad outcome abroad could trigger safe-haven capital flows into the UK that push the value of Sterling higher, making exporting more challenging, with knock-on implications for wages and prices here.’
‘Low global inflation matters for the UK because we are an open economy.’
As a result, the Pound Sterling exchange rate fell against 16 of its major currency peers and tumbled for the first time in the last eight days against the Euro (GBP/EUR). The Pound Sterling to Euro (GBP/EUR) exchange rate had previously hit a seven-year high this week on BoE rate hike forecasts.
Meanwhile, the US Dollar took an unsuspected hit on Thursday when US Advance Retail Sales slipped. February was expected to show 0.3% growth after January’s -0.8% decline; however, the actual ecostat fell by -0.6%.
EUR/GBP EUR/USD Exchange Rates Recover from Lows
The US Dollar to Euro (USD/EUR) exchange rate dropped from a 12-year high on the news. However, some economists are suggesting that the data was an anomaly.
Bloomberg economist Carl Riccadonna commented: ‘It looks like a big weather effect here. A lot of February data is going to look muddy. This is just a blip. The consumer is fine.’
Sales analyst Erich Merkle stated: ‘We go through this every year. It’s really hard to hang any hats at this point on January and February.’
Meanwhile, the Canadian Dollar hit a six-year low of 78.36 versus the US Dollar (CAD/USD) on Wednesday as investors priced in a Federal Reserve rate hike in the near future. However, Thursday saw the CAD/USD currency pair rise slightly as the US Dollar broadly softened.
The US Retail Sales ecostat did raise concerns amongst investors and allowed weaker currencies such as the ‘Loonie’ to claw back some losses.
However, Friday is likely to be an exciting day for the Canadian Dollar with the release of Canadian Unemployment Rate and Net Change in Employment figures.
Economists have forecast a rise in Canadian joblessness from 6.6% to 6.7%—a factor that’s unlikely to offer the Canadian Dollar any support. Furthermore, Net Change in Employment is expected to show the Canadian economy shed -5.0K jobs in the month of February.
If economists’ predictions turn out to be incorrect and the Canadian economy records some improvement, the ‘Loonie’ could rally.
UPDATE: The Canadian Unemployment Rate jumped higher than economists had forecast, increasing from 6.6% to 6.8%, despite Net Change in Employment figures contracting by only -1.0K, less than the 5.0K predicted.
However, unemployment is expected to have increased as the Participation Rate also jumped from 65.7% to 65.8%.
‘Grexident’ Fears Could Pressure Euro Exchange Rates (EUR/USD, EUR/GBP, EUR/CAD) Lower
The Euro is sensitive to any escalations in the ongoing Greek negotiations as tensions seem to be heightening. Germany and Greece are certainly at loggerheads and Germany has now suggested that Greece could suffer a ‘Grexident’, where the nation could leave the Eurozone by accident.
However, as the debate flits back and forth between the two nations, negotiations seem to be in the background with not much progress being made.
European Commission President Jean-Claude Juncker commented: ‘I’m not satisfied with the developments in recent weeks. I don’t think we have made sufficient progress. I’m totally excluding a failure. I don’t want a failure. I would like Europeans to go together. This is not a time for division. This is a time for coming together.’
One of the main fears of finance ministers at the moment is the domino effect Greece could have if it left the Eurozone – particularly if the nation left and flourished. If Greece recovered well after a ‘Grexit’ it would leave the door open for other nations to leave.
Pound Sterling (GBP) Exchange Rate Forecast: GBP/EUR, GBP/USD, GBP/CAD
The Pound Sterling exchange rate is likely to remain weaker on Friday after UK Construction Output figures fell dramatically below forecasts. The annual ecostat slipped from +5.5% to -3.1% in January; predictions were for a much smaller fall to +2.1%.
Additionally, influential Canadian and US figures are likely to cause GBP/USD and GBP/CAD fluctuations.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is trading at 1.4866. The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate is reaching 1.8926. The Pound Sterling to Euro (GBP/EUR) exchange rate is trending in the region of 1.4016.