UK Deficit Narrows and GBP/USD Climbs, But GBP/EUR Struggles as Greece Presents Reform Proposals
The Pound Sterling to US Dollar (GBP/USD) currency pair advanced by around 0.8% on Friday to come within touching distance of 1.55.
‘Cable’ was supported by rising risk appetite, Thursday’s below forecast US jobs data and the IMF’s warnings regarding the Federal Reserve increasing interest rates too soon.
The UK’s better-than-forecast trade data also had a positive impact.
Meanwhile, the GBP/EUR exchange rate extended previous declines as Greece did as creditors asked and presented a credible list of reform proposals. Whether they will be accepted by the public and lenders, however, remains to be seen.
The Pound Sterling to Euro (GBP/EUR) exchange rate was trending in the region of 1.3873
The Pound Sterling to US Dollar (GBP/USD) exchange rate was trending in the region of 1.5490
With Greek crunch talks being postponed until Friday the Pound Sterling to Euro (GBP/EUR) exchange rate dropped to 1.38, shedding 1%, while the Pound Sterling to US Dollar (GBP/USD) exchange rate fell back to 1.53 ahead of the publication of the FOMC meeting minutes.
Pound Sterling to Euro (GBP/EUR) Tumbles from 7-Year Best Exchange Rate, Pound Sterling to US Dollar (GBP/USD) Forecast to Hold Fresh One-Month Low
The Pound was on the up and up for much of June, with the Pound Sterling to Euro (GBP/EUR) exchange rate rallying to its strongest levels for seven years and the Pound Sterling to US Dollar (GBP/USD) exchange rate achieving an eight-month best of 1.5917.
However, the British currency has since experienced a rather dramatic reversal of fortunes.
Concerns that Greece was on the brink of a Grexit drove the GBP/EUR pairing to 1.43 but bets that the nation will be able to come to an accord with creditors by the newly extended deadline of Sunday 12th have since seen the Pound tumble all the way back to 1.39. Reduced demand for higher-risk assets have also prompted broad-based US Dollar gains and triggered ‘Cable’ losses.
Euro Exchange Rate Gains on US Dollar (EUR/USD), Pound Sterling (GBP/EUR) As Hopes Greece will Avoid a Grexit Lend the Common Currency Support
Although European Commission President Jean-Claude Juncker displayed a lack of confidence in the upcoming talks when he stated; ‘We have a Grexit scenario prepared in detail’ other industry experts have hope that the Hellenic nation’s dire fiscal situation will give it little option but to concede to creditors demands regarding spending cuts and pension reforms.
In the view of economist Malcolm Barr; ‘This is the big one. The ‘good’ news for Greece is that it is being given a clear opportunity to put its proposals in a concrete form and have them evaluated by the rest of the region.’
British Pound Holds Declines against Euro (GBP/EUR), US Dollar (GBP/USD) As 2015 Summer Budget Outlines Spending Cuts, UK Deficit
The Pound Sterling to Euro (GBP/EUR) and Pound Sterling to US Dollar (GBP/USD) exchange rates continued trending in a softer position after Chancellor of the Exchequer George Osborne outlined the first entirely Conservative Summer budget for almost twenty years.
In the budget Osborne stated that the pace of budget deficit reduction would remain the same. He also outlined tax relief limits and a new surcharge on bank profits.
Osborne stated; ‘The British economy I report on today is fundamentally stronger than it was five years ago. Having come this far, there can be no turning back. […] This is a budget that can only be delivered because the British people trusted us to finish the job. We should aim for a new settlement across the political spectrum where it is accepted that without sound public finances there is no economic security for working people, that those who suffer when governments run unsustainable deficits are not the richest but the poorest, and therefore in normal economic times governments should run an overall budget surplus.’
Demand for the Pound remained stilted as Osborne cut the UK’s 2015 growth forecast from 2.5% to 2.4%. The estimated rate of expansion in 2016 remained the same at 2.3%.
Pound Sterling to Euro (GBP/EUR) and Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast – FOMC Minutes Could Push ‘Cable’ to New Lows Today, BoE Interest Rate Decision Ahead
Unless any new developments take place in Greece, the Pound Sterling to Euro (GBP/EUR) exchange rate is likely to continue trending below the 1.40 level ahead of Sunday’s all important talks.
The Pound Sterling to US Dollar (GBP/USD) currency pair, meanwhile, could extend losses if the minutes from the latest Federal Open Market Committee (FOMC) policy meeting make any allusions to a September rate adjustment.
Analysts with BNP observed; ‘The release of the minutes to the June FOMC meeting Wednesday may provide a timely reminder that the Fed is moving towards tightening, even though the meeting predated the June jobs data and the latest Greece news. Our economists point out that five FOMC members arrived at the June meeting anticipating that three rate hikes would be appropriate by the end of 2015—their optimistic views on the outlook and inclination to begin hiking at least by September, if not earlier, should be reflected in the minutes. San Francisco Fed President Williams, who has been an advocate of rate hikes this year, will also speak, and it will be important to see if the latest news has impacted his thinking. We remain patiently bullish on the USD, even though it now seems as if we will need to wait a few more months for the big adjustment higher in US front-end rates we had been anticipating this month.’
Given that the Bank of England (BoE) isn’t likely to make any policy adjustments in the midst of so much political uncertainty in Europe (and also in light of yesterday’s disappointing UK Manufacturing Production numbers) the central bank’s interest rate announcement will have a limited impact on GBP/EUR, GBP/USD exchange rate trading.
Friday’s UK trade numbers, however, could prove far more influential.
Current GBP, EUR, USD Exchange Rates
The Pound Sterling to Euro (GBP/EUR) exchange rate was trending in the region of 1.39, the Pound Sterling to US Dollar (GBP/USD) exchange rate was trending in the region of 1.5368, the Euro to Pound Sterling (EUR/GBP) exchange rate was trending in the region of 0.7192 and the US Dollar to Pound Sterling (USD/GBP) exchange rate was trending in the region of 0.6507.