Pound Sterling (GBP) Could Soften if Inflation Falls
As trading progressed on Monday the Pound recovered previous losses against the US Dollar and consolidated gains against the Euro as investors looked ahead to tomorrow’s UK Consumer Price Index.
The report is scheduled for publication at 09:30 GMT so we can expect a flurry of GBP movement to occur following its release.
The GBP/EUR exchange rate could also be affected by the Eurozone’s industrial production report, while the GBP/USD currency pair will be sensitive to the US Advance Retail Sales stats.
GBP/EUR at 1.38, GBP/USD Trends at 1.46 in Quiet Data Day – UK Inflation Ahead
In a day devoid of any notable economic releases from the UK, US or Eurozone, both the Pound Sterling to Euro (GBP/EUR) and Pound Sterling to US Dollar (GBP/USD) exchange rates were trending in a narrow range.
While the political uncertainty in the UK kept the Pound close to a five-year low against the US Dollar, the GBP/EUR pairing retained gains secured towards the close of last week on the back of Greek concerns.
This evening some GBP/USD exchange rate movement could occur as the US publishes its monthly budget statement and the British Retail Consortium issues like-for-like sales figures, but investors will largely be looking ahead to tomorrow and the UK’s Consumer Price Index for March.
Should inflation hold steady at 0.0%, as expected, it would limit Pound movement. However, a move into deflation would weaken Sterling while an up-tick in consumer price gains would be Pound-supportive.
The Pound Sterling to Euro (GBP/EUR) exchange rate was trending in the region of 1.3820
The Pound Sterling to US Dollar (GBP/USD) exchange rate was trending in the region of 1.4606
The Pound Sterling to Euro (GBP/EUR) exchange rate clung to previous gains on Friday as there was another twist in the tale of Greek bailout negotiations, but the Pound Sterling to US Dollar (GBP/USD) exchange rate hit a five-year low following the release of disappointing UK data.
Pound Sterling to Euro (GBP/EUR) Exchange Rate News: Greece Given 6 Days to Compose New Reforms, Euro Movement Forecast
Although the Pound closed out the week trending in a softer position against a number of its most-traded currency counterparts as a result of below forecast UK industrial/manufacturing production and construction output figures, the GBP/EUR exchange rate managed to linger at the 1.38 level thanks to widespread Euro weakness.
The Pound Sterling to Euro (GBP/EUR) exchange rate hit a high of 1.3839 on Friday
The common currency eased lower as the Greek bailout negotiations entered a new phase. The heavily indebted Hellenic nation was given six days to revise its reform proposals, and the knowledge that Greece is rapidly running out of funds (while its creditors run out of patience) kept the Euro under pressure. The Euro had previously gained as Greece met its debt repayment to the International Monetary Fund (IMF), although some industry experts voiced concerns about where the funds had come from.
Greek Finance Minister Yanis Varoufakis used a televised interview with Bloomberg to highlight three conditions he feels must be met if a deal is to be reached within the set timeframe.
The conditions were; ‘One – Prioritize deep reforms that will deal with the malignancy of the Greek social economy, of the Greek state. Two – Deal with the ill effects of a five-year catastrophic recession.’
‘Three – A resolution of long term, sustainable fiscal plan that involves three elements. One has to do with appropriate primary surpluses, so we need primary surplus. We never are going to fall back into primary deficits again, but at the same time this should not be excessive because it will crush the private sector. We need a sensible policy for crowding in private investment and that must involve a package of public investment… from some kind of European authority or institution that will help with the process of crowding in private investment… and a rationalization on the different slices of the Greek debt without any haircuts for anyone but in a way that maximizes the amount of value that our creditors will get back from the Greek state.’
The situation is likely to continue causing GBP/EUR exchange rate movement in the week ahead.
Pound Sterling to US Dollar (GBP/USD) Exchange Rate News: GBP/USD Forecast to Hold at 5-Year Low Before Inflation Data
Meanwhile, the Pound’s performance against the ‘Greenback’ was far less inspiring and the Pound Sterling to US Dollar (GBP/USD) exchange rate sank to a multi-year low after the UK’s run of ecostats pointed to a slowing in the pace of economic output.
The US Dollar was also able to trend in a broadly stronger position as Richmond Fed President Jeffrey Lacker repeated earlier assertions that US borrowing costs need to be increased in the summer.
The Pound Sterling to US Dollar (GBP/USD) exchange rate hit a low of on 1.4584 Friday
He stated; ‘Unless incoming economic reports diverge substantially from projections, the case for raising rates will remain strong at the June meeting.’
Pound Sterling to Euro (GBP/EUR) and Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast: UK, US Inflation Data, ECB Announcement Ahead
Over the next five days both the Pound Sterling to Euro (GBP/EUR) and Pound Sterling to US Dollar (GBP/USD) exchange rates are likely to be subject to notable movement due to the publication of several high-profile economic reports.
Among the most important in terms of their potential to cause exchange rate movement are the UK and US Consumer Price Indexes, the US Advance Retail Sales report and the European Central Bank’s (ECB) policy announcement.
Deflation in the UK would drag the Pound lower, while a declining in consumer price pressures in the US could push back US interest rate hike expectations.
Similarly, if US retail sales show the rebound anticipated by economists, the US Dollar could extend its current rally against the Pound and potentially hit new highs.
The ECB announcement is expected to focus on the impact quantitative easing has had on the Eurozone since its launch last month.
The UK political climate will also be adding to the pressure on the Pound in the run up to the May election.
The Euro to Pound Sterling (EUR/GBP) exchange rate was trading in the region of 0.7250, the Pound Sterling to US Dollar (GBP/USD) exchange rate was trending in the region of 1.4652, the US Dollar to Pound Sterling (USD/GBP) exchange rate was trading in the region of 0.6823, the Pound Sterling to Euro (GBP/EUR) exchange rate was trending in the region of 1.3790