Headlines
• UK Services Growth Sees GBP/EUR Trend at 1.41
• Euro Struggles after Draghi Easing Comments
• USD Direction Depends on NFP Report
• ‘Cable’ Could Surge on Poor Jobs Numbers
GBP/EUR – Sterling surges on positive UK data
This week has been a positive one for the Pound, with the GBP/EUR exchange rate rallying from a low of 1.3797 to a multi-month high of 1.4128.
Sterling’s uptrend began on Monday as the UK’s Markit Manufacturing PMI jumped unexpectedly. The index of the nation’s manufacturing sector had been expected to show a slowing pace of growth but actually rose from a positively revised 51.8 to 55.5 in October.
While the UK’s Construction PMI did show a decline in output, the result wasn’t enough to dampen GBP/EUR trading and Wednesday’s upbeat Services PMI was enough to keep the Pound trending above the 1.41 level. The Pound’s gains against the Euro were also due to the common currency weakening in response to a worsening of the Volkswagen crisis and easing-related remarks from European Central Bank (ECB) President Mario Draghi.
However, the GBP/EUR exchange rate’s advance could be reversed if tomorrow’s ‘Super Thursday’ of Bank of England (BoE) announcement weigh on interest rate hike expectations. The BoE is set to make its interest rate decision and publish both its policy meeting minutes and quarterly inflation report. A more decisively split vote from the Monetary Policy Committee (MPC) on the subject of when interest rates should rise or a positive inflation report would be Pound supportive, but if the central bank indicates borrowing costs will remain on hold for the foreseeable future, we may see Sterling slide.
GBP/USD – Back to 1.54 ahead of US jobs data
The Federal Open Market Committee’s (FOMC) moderately hawkish policy statement sent the GBP/USD exchange rate on a downtrend last week but ‘Cable’ has since staged an impressive recovery.
With the US publishing a mixed bag of economic reports and rate hike expectations still patchy, the Pound Sterling to US Dollar exchange rate has recovered from a low of 1.5246 to achieve a high of 1.5484.
While the US ISM Non-Manufacturing PMI and ADP Employment Change report will be of interest to investors, the week’s main market-mover is undoubtedly Friday’s Non-Farm Payrolls report.
September’s jobs numbers disappointed on all fronts and if October’s stats follow suit it could put the final nail in the coffin for 2015 Federal Reserve interest rate hike expectations and drive the US Dollar lower. Of course, the ‘Super Thursday’ trio of announcements will also have an impact on the direction taken by the GBP/USD exchange rate.
EUR/GBP – Prospect of December ECB stimulus drives Euro lower
The common currency has been on a decided downtrend this week, with the EUR/GBP pairing slipping from 0.7248 to 0.7086 in reaction to the latest Volkswagen drama and stimulus related commentary from the European Central Bank (ECB).
ECB President Mario Draghi upped the odds of easing being adjusted before the close of the year on Tuesday during a speech in Frankfurt.
Draghi stated; ‘History shows that deflation can be just as damaging to the prosperity and stability of our economies as high inflation. The Governing Council is willing and able to act by using all the instruments available within its mandate if warranted in order to maintain an appropriate degree of monetary accommodation.’
Although the rate of inflation in the currency bloc has risen in recent months it remains well below the ECB’s target and other areas of the Eurozone’s economy have also yet to return to pre-crisis levels. Further action from the ECB would be Euro supportive long term but is likely to have a detrimental impact on demand for the common currency in the short to medium term.
EUR/USD – Volkswagen emissions scandal rumbles on
With the US Dollar fairly static ahead of Friday’s all-important Non-Farm Payrolls report and the Euro being driven lower across the board by Volkswagen, the EUR/USD exchange rate has been trending in a comparatively narrow range.
The Euro to US Dollar currency pair has been moving between lows of 1.0903 and highs of 1.1085 this week. It has been announced that the Volkswagen emissions scandal could affect a wider range of engines than initially believed and the German manufacturer’s stock accordingly plummeted by 11%. Given the ramifications this scandal could have on the wider German economy, and subsequently the Eurozone as a whole, any further revelations are likely to keep the Euro under pressure.
However, if Friday’s US Non-Farm Payrolls report disappoints we could still see the EUR/USD exchange rate rise before the weekend.
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