Will Pound (GBP) Recovery Continue when UK Construction Data is Released?
After yesterday’s huge drop caused by a downward revision of UK GDP by the Confederation of British Industry (CBI), Pound Sterling is trading higher as investors buy the Pound while it is cheap. The uptick could be curtailed soon, however, with the release of UK Construction Output for December if the data repeats the performance of Wednesday’s industrial and manufacturing data.
UK Borrowing Costs Hit Lowest Level Since 17th Century
The latest drop in UK bond yields means that borrowing is currently the cheapest it has been since the debt markets began in the 1600s – although it is highly likely that even Medieval kings did not enjoy better interest rates. The yield on 10-year Gilt has fallen to 1.3% as the UK’s FTSE 100 sinks to a 3 and a half year low.
A downward revision in two key growth forecasts has tipped the Pound Sterling to Euro (GBP/EUR) exchange rate into a strong decline today. Meanwhile, another stock market tumble has financial institutions and investors flocking back to safer Euros (EUR), allowing the common currency to adopt a bullish relationship with the Pound (GBP).
Pound Sterling to Euro (GBP/EUR) Exchange Rate Tumbles on Negative Revisions to GDP Forecast
Two influential predictions for the health of the UK economy point to a slowdown in growth over the coming months and years. Yesterday’s GDP estimate from the National Institute of Economic and Social Research (NIESR) predicts growth of just 0.4% in the three months to January; a slowdown from the 0.5% estimate for the final quarter of 2015, which itself was revised down from 0.6%. The institute continues to expected growth of 2.3% over the coming year, although it has highlighted the poor performance of the UK’s industrial sector and the widening trade deficit as serious dragging factors.
Their 2016 outlook is now matched by the prediction from the Confederation of British Industry (CBI), the UK’s largest employers’ organisation. Noting poor economic performance in the final few months of 2015 and weakening prospects for household spending, investment and trade, the CBI has cut -0.3% from its growth forecasts for 2016 and 2017 made in November. The 2016 forecast is now the same as the growth outlook from NIESR, while 2017’s GDP is now expected to be 2.1%.
In other UK news, the RICS House Price Balance has remained flat at 49% after the previous reading was revising down from 50%. According to the data, 74% of survey participants were attempting to secure properties before a new transaction tax comes into effect in April. The tax is a measure by the Chancellor George Osborne to reduce the number of buy-to-let property purchases, which the Bank of England (BoE) has highlighted as an area of vulnerability in the UK economy.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.2716.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Bullish as Investors Desert Stocks
The stock markets are firmly back in bear mode today, with Eurozone bank shares again taking a heavy hit. China having to dip into its foreign reserves to keep a grip on the Yuan (CNY) and the People’s Bank of Japan (PBoJ) cutting interest rates negative has sparked fears that central bankers are running out of ammunition in the fight to keep their economies stable. The FTSE 100 is down -2.6% and the CAC 40 and DAX indexes down -2.9%. Deustche Bank shares have fallen -5.7% while Commerzbank shares have tumbled -6.2%.
As a result, investors have once again turned to Euro-denominated assets, pushing the value of the common currency up. The single currency is making gains of 0.9% against the Canadian Dollar (CAD) and Indian Rupee (INR), 1% against Pound Sterling and 1.6% against the Australian Dollar (AUD).
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trading between 0.7755 and 0.7874.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: Fed’s Yellen Could Weaken Single Currency Today
There is little in the way of UK or Eurozone data due out for the rest of today, but another public appearance by the US Federal Reserve Chair, Janet Yellen, could spark Euro movement. If Yellen makes comments that reinforce the idea that the Federal Reserve will continue to raise interest rates the Euro could weakening on the prospect of widening policy divergence and the negative correlation between the Euro and US Dollar.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trading between 1.2690 and 1.2891.