The Pound Sterling to Euro (GBP/EUR) and Pound Sterling to US Dollar (GBP/USD) exchange rates were both trending lower at the start of Thursday’s European trading ahead of the Bank of England’s interest rate decision.
The EUR exchange rate could be in for some major movement on Thursday after Greek PM Alexis Tsipras rejected the reform proposal sent by creditors.
— Ipek Ozkardeskaya (@IpekOzkardeskay) June 4, 2015
The Pound Sterling to Euro (GBP/EUR) and Pound Sterling to US Dollar (GBP/USD) exchange rates were both trending higher on Wednesday ahead of Markit’s UK Services PMI, the European Central Bank’s (ECB) interest rate decision and follow-up Mario Draghi press conference, and US ISM Non-Manufacturing Composite data.
The ECB Mario Draghi press conference provided some support to the Euro (EUR) exchange rate, but he failed to discuss exit scenarios for the central bank’s QE programme and didn’t go into deal regarding Greece.
— Maxime Sbaihi (@MxSba) June 3, 2015
The US ISM Non-Manufacturing Composite stat dropped to 55.7 in May from the previous 57.8 offering the US Dollar (USD) little support.
Markit’s UK Services PMI causes Pound Sterling (GBP) Exchange Rate to Drop
The Pound Sterling to Euro (GBP/EUR) and Pound Sterling to US Dollar (GBP/USD) exchange rates both dropped on Wednesday when Markit’s UK Services PMI came in much lower than forecast. The May PMI fell from 59.2 to only 56.5, rather than climbing to 59.5.
Markit economist Chris Williamson commented: ‘“Recent weakness in manufacturing and construction has spread to services. Overall growth in May across all three sectors was the lowest since December and the second-weakest for two years.’
The Pound Sterling to Euro (GBP/EUR) exchange rate was trending lower in Tuesday’s European session as the common currency strengthened broadly on Greece optimism, while the Pound Sterling to Canadian Dollar (GBP/CAD) and Pound Sterling to US Dollar (GBP/USD) exchange rates climbed after Markit’s UK
Construction PMI printed above forecasts and US Factory Orders slipped.
The UK’s Markit Construction PMI reached 55.9 in May from the previous month’s 54.2, brushing past the 55.0 forecast. Meanwhile, US Factory Orders slipped by -0.4% in April after March’s 2.1% growth.
The Pound Sterling to Euro (GBP/EUR) exchange rate was trading higher on Monday as Greek uncertainty continued to weigh on the common currency, while the Pound Sterling to US Dollar (GBP/USD) exchange rate softened after the UK Manufacturing Purchasing Managers Index (PMI) failed to print as favourably as forecast.
UK Markit Manufacturing PMI Prints Below Forecasts Causing Pound Sterling (GBP) Exchange Rate to Soften
Monday’s Markit UK Manufacturing PMI came in at 52.0 in May after the previous month’s negatively revised 51.8. Economists had forecast a rise to 52.5.
Economist David Noble stated: ‘Overall, the sector’s enduring driver continued to be domestic demand, as exports failed to ignite any new highs in recovery. This uninspiring level of activity is likely to cast a shadow in the coming months and encourage expectations of a flatlining future.’
UPDATE: As Monday’s European trading continued the Euro (EUR) exchange rate was able to recover some losses against the Pound Sterling.
Pound Sterling to Euro (GBP/EUR), US Dollar to Euro (USD/EUR) Exchange Rates Climb as Greece Faces Bankruptcy and International Monetary Fund (IMF) Default
The Pound Sterling to Euro (GBP/EUR) exchange rate was trending higher after Greek Prime Minister Alexis Tsipras hit out at creditors and stated that he refused to be pushed further by their ‘absurd demands’.
Tsipras’s take on Monday’s meeting in Berlin is that EU’s political leaders came together to examine proposal made by Greek gov’t #Greece
— Nick Malkoutzis (@NickMalkoutzis) June 2, 2015
Greek PM Tisparis said: ‘The lack of an agreement so far is not due to the supposed intransigent, uncompromising and incomprehensible Greek stance. It is due to the insistence of certain institutional actors on submitting absurd proposals and displaying a total indifference to the recent democratic choice of the Greek people.’
Additionally, Tsipras hinted that if he were to be pushed any further, he had scope to create a political and strategic crisis. If Greece were to default on its €330bn of debt the Euro (EUR) exchange rate could sink as the Eurozone deals with the shock of a currency bloc member loss. Furthermore, if Greece were to default it’d be the largest sovereign default on record.
— MacroPolis (@MacroPolis_gr) May 28, 2015
US Dollar to Pound Sterling (USD/GBP), US Dollar to Euro (USD/EUR) Exchange Rates Climb as Investors Look towards Non-Farm Payrolls and Federal Reserve Rate Hike
The US Dollar has gained popularity in recent weeks as a stream of favourable US data emerged and investors anticipated the possibility of a Federal Reserve interest rate hike taking place in the near future. A better-than-forecast US core inflation figure set the ball rolling and favourable data since then has increased the US Dollar’s popularity.
This week is likely to see some major US Dollar to Euro (USD/EUR) and US Dollar to Pound Sterling (USD/GBP) exchange rate gains if labour market stats print favourably. Friday’s forecast to see US Change in Non-Farm Payrolls come in at 225K in May, while the US Unemployment Rate is predicted to remain the same at 5.4%.
However, in the run-up to Friday’s labour market stats there are other influential indicators which could cause US Dollar fluctuations, such as Monday’s US ISM Manufacturing stat and Wednesday’s ADP Employment Change, ISM Non-Manufacturing Composite figures.
Any upbeat data is likely to spur investor sentiment for a US Federal Reserve interest rate hike in the near future. The Fed has suggested numerous times that a strong labour market would be likely to translate into higher borrowing costs.
Pound Sterling to Euro (GBP/EUR), Pound Sterling to US Dollar (GBP/USD) Exchange Rates Forecast for Bank of England (BoE) Movement
The Bank of England (BoE) is likely to cause some significant Pound Sterling (GBP) exchange rate movement this week with both the latest Monetary Policy Committee (MPC) interest rate decision and BoE/GfK 12-Month Inflation Forecast due out on Thursday and Friday respectively.
However, the BoE is unlikely to change the current 0.50% benchmark interest rate, but investors will look towards the meeting minutes out later in the month for guidance on whether a policymaker divergence occurred.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is trading at 1.5208 while the Pound Sterling to Euro (GBP/EUR) exchange rate is trending in the region of 1.3862.