GBP/EUR Exchange Rate: Softer UK GDP Limits Sterling Appeal
Confirmation that the fourth quarter UK gross domestic product eased to 0.4% on the quarter did little to support GBP exchange rates.
Signs of weakness in the UK housing market added to the bearishness of the Pound on Thursday, even though the latest net consumer credit data bettered expectations.
With the domestic growth outlook still looking rather fragile thanks to lingering Brexit-based uncertainties the mood towards Sterling naturally soured.
As concerns have mounted over the global trade picture, given rising tensions between the US and China, the outlook for GBP exchange rates is expected to remain rather muted in the near term.
GBP/USD Exchange Rate: Pound Rally Possible on Stronger UK Services PMI
While the UK manufacturing PMI for March showed a modest uptick, from 55.0 to 55.1, this has failed to shore up the Pound this week.
Even though the sector demonstrated solid growth on the month the underlying picture remains rather mixed, with new orders found to have fallen to a nine-month low.
The Pound lost further ground once March’s construction PMI was found to have unexpectedly fallen into contraction territory, exacerbating worries over the resilience of the economy.
A rallying point could still be in store for GBP exchange rates, however, if the corresponding services PMI proves more positive in nature.
Given that the service sector accounts for more than three quarters of UK GDP a stronger showing here could encourage greater confidence in the health of the domestic outlook, to the benefit of the Pound.
USD/GBP Exchange Rate: US Protectionism Keeps US Dollar under Pressure
Trade war fears continued to escalate after the US and China announced fresh reciprocal tariffs on a wide range of products.
China’s decision to impose a 25% tariff on soybean imports provoked particular concern, thanks to the heavy impact that this could have on the US agricultural belt.
Even so, while the US Dollar returned to a weaker footing a significant degree of underlying support remains, limiting the weakness of the USD/GBP exchange rate.
With March’s US unemployment rate expected to fall from 4.1% to 4.0% on Friday there is the potential for further USD gains ahead of the weekend, as continued tightening of the labour market is likely to encourage greater Federal Reserve hawkishness.
EUR/USD Exchange Rate: Underwhelming German Inflation Limits ECB Outlook and Euro Potential
As the German consumer price index data fell short of forecasts investors were encouraged to pile out of the Euro ahead of the bank holiday weekend.
Even though inflationary pressure did pick up on the year it continues to trail the European Central Bank’s (ECB) target level, keeping the odds of any imminent policy action muted.
Any signs of softness within the Eurozone economy could keep EUR exchange rates on the back foot, with forecasts pointing towards a stagnation in February’s producer price index.
However, if the latest retail sales and PMI data prints positively this is likely to encourage the single currency to return to a stronger footing in the near term.