The US Dollar to Pound Sterling (USD/GBP) and US Dollar to Euro (USD/EUR) exchange rates were trending in a narrow range on Thursday ahead of the Bank of England’s (BoE) interest rate decision and after Greece’s rejection of its creditors’ proposals.
UPDATE:The Bank of England opted to keep interest rates at 0.50% in June; however, it’s possible that a Monetary Policy Committee (MPC) divergence occurred which will be detailed in the meeting minutes out later this month.
Friday saw the US Dollar (USD) climb against the Pound (GBP), while falling against the Euro (EUR) as investors forecast an agreeable end to the ongoing Greek negotiations.
Meanwhile, US Initial Jobless Claims came in at only 276K in the week through May 30th, rather than the 278K forecast. Additionally, the Continuing Claims stat fell below forecasts at 2196K in the week through May 23rd.
— Alexis Tsipras (@tsipras_eu) June 4, 2015
The US Dollar to Pound Sterling (USD/GBP) and US Dollar to Euro (USD/EUR) exchange rates were trending higher in Wednesday’s European trading after a weaker-than-forecast Markit UK Services Purchasing Managers Index (PMI) emerged, the effect of dovish Federal Reserve comments wore off and investors awaited developments in Greece and the US ISM Non-Manufacturing Composite stat.
US Dollar (USD) Awaits US Change in Non-Farm Payrolls and ISM Non-Manufacturing Composite Data
The US Dollar (USD) is in for a highly influential week ahead with the release of ISM Non-Manufacturing Composite, US Unemployment Rate and US Change in Non-Farm Payrolls data.
The US ISM Non-Manufacturing Index slipped from 57.8 to 55.7 in May, offering the US Dollar (USD) little support. However, the ADP Employment Change stat managed to reach 201K in May, rather than the 200K forecast and caused investors to price in favourable US Change in Non-Farm Payrolls and US Unemployment Rate data on Friday.
GBPUSD timberrrrrrrr pic.twitter.com/WJpQvQ5zPf
— Jonathan Ferro (@FerroTV) June 3, 2015
However, any comments from the Federal Reserve at the moment are capable of causing major US Dollar (USD) fluctuations as investors look for signs of US interest rate hikes.
Federal Reserve Comments Cause Major US Dollar (USD) Weakness
Federal Reserve policymaker Lael Brainard stated on Tuesday that she doesn’t feel the US will have a substantial second quarter rebound and that the economic slowdown may not be just temporary, as previously suggested by the Fed.
Brainard commented: ‘No doubt, bad weather, port disruptions, and statistical issues are responsible for some of the softness in first quarter indicators of aggregate spending. But there may be reasons not to ignore the recent readings entirely.’
The dovish statements from the Fed board member were enough to pressure the US Dollar (USD) lower as investors began to price out Federal Reserve rate hikes in the near future.
However, Fed’s Brainard spoke about US interest rates, stating: ‘While the case for liftoff may not be immediate, it is coming into clearer view.’
By way of data, Wednesday will see the release of the ISM Non-Manufacturing Composite, which is forecast to fall from 57.8 to 57.0 in May. If a drop does occur, the US Dollar to Pound Sterling (USD/GBP) and US Dollar to Euro (USD/EUR) exchange rates could soften significantly.
Grexit Fears Weigh on Euro (EUR) Exchange Rate
Meanwhile, across the Atlantic, the Euro (EUR) is trading with the weight of Greek negotiations hanging over it as investors’ price in the possibility of a Greek default this week. Greece is due to make one of its June International Monetary Fund (IMF) payments this Friday, but it’s presently unclear whether that will happen or not.
Greece stated on Wednesday that without a deal in place there would be no IMF payment made. Greece submitted a 47-page reform proposal earlier this week and it appears as if creditors are due to do the same today, which means if one side doesn’t cave and agree to the other’s requirements we could witness not only a default, but also a Greek exit (Grexit) from the Eurozone.
ECB Interest Rate Decision and Draghi Conference Forecast to cause Euro (EUR) Exchange Rate Movement
The Euro (EUR) exchange rate is also likely to fluctuate on Wednesday with the European Central Bank (ECB) due to announce its latest interest rate decision, with a follow-up press conference held by ECB President Mario Draghi.
UPDATE: The ECB President commented on the Greek situation, saying that a ‘strong’ deal needs to be put in place.
Draghi says when he says the agreement shd be “strong” he means strong in design and in implementation – ie, things done sooner than later
— Tony Connelly (@tconnellyRTE) June 3, 2015
Any comments by Draghi on the topic of quantitative easing (QE) could see the Euro (EUR) exchange rate significantly fluctuate against both the Pound Sterling (GBP) and US Dollar (USD) after recent comments of an uptake in the programme caused the Euro (EUR) to sink.
Double dose of good news for the Eurozone with unemployment falling 130,000 in April and retail sales rising a robust 0.7% month-on-month.
— Howard Archer (@HowardArcherUK) June 3, 2015
The Euro to US Dollar (EUR/USD) exchange rate is trending in the region of 1.1130 with market movement of -0.15%.
Pound Sterling (GBP) Exchange Rate Drops as Markit’s UK Services PMI Registers Decline
The Pound Sterling to US Dollar (GBP/USD) and Pound Sterling to Euro (GBP/EUR) exchange rates were both trending lower on Wednesday after Markit’s UK Services PMI came in below forecasts at 56.5 in May. The ecostat was predicted to fall from 59.5 to 59.2 and therefore the surprise drop saw investor sentiment in the Pound Sterling (GBP) dissipate.
Industry expert David Noble stated: ‘Momentum in the sector stalled in May, with the drop in the headline index the biggest fall for almost four years and likely to cause concern as services remains the UK’s largest driver of economic growth.’
BoE Inflation Forecast and BoE Interest Rate Decision Forecast to cause Pound Sterling (GBP) Exchange Rate Fluctuations
The Pound Sterling (GBP) exchange rate is likely to be in for some major fluctuations on Thursday and Friday with both the Bank of England (BoE) interest rate decision and BoE/GfK 12-Month Inflation Forecast due for release.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is trending in the region of 1.5278 with market movement of -0.38%.
The US Dollar to Pound Sterling (USD/GBP) exchange rate is trending at 0.6548 while the US Dollar to Euro (USD/EUR) exchange rate is trending in the vicinity of 0.8984.