GBP/EUR – Pound Edges Higher after ‘Brexit’ Losses
After slumping to a 13-month low earlier in the week, the GBP/EUR exchange rate rallied by around 0.9% on Wednesday even after domestic data failed to impress. Both Industrial and Manufacturing Production were shown to have slumped on the month and year in December, reflecting imbalances in the UK economy and the nation’s reliance on service sector output. GBP has depreciated significantly in recent weeks as a result of Bank of England (BoE) dovishness and concerns relating to the UK’s upcoming EU referendum. A resultant bout of profit taking offered the Pound some breathing space on Wednesday however and GBP climbed. The coming seven days will see a number of British ecostats with the potential to provoke Sterling volatility, including Tuesday’s consumer price data. Low inflation has been one of the main stumbling blocks preventing the BoE from increasing interest rates, so any improvement to consumer prices will likely be met with GBP appreciation.
GBP/USD – ‘Cable’ Rallies on Improved Market Sentiment
The Pound Sterling to US Dollar exchange rate edged higher ahead of Fed Chairwoman Janet Yellen’s appearance before the House Financial Services Committee. Concerns that the Federal Reserve’s next move could be a rate cut in light of mounting eternal risks and a dismal domestic inflation outlook has seen demand for the US Dollar cool. Whilst only a few analysts agree that the Fed could cut rates, most have openly reduced bets regarding the number of hikes they expect to occur during 2016. There will be plenty of important domestic data published over the coming seven days so we can expect further GBP/USD movement. Of particular significance will be Friday’s Advance Retail Sales and University of Michigan Confidence reports.
USD/GBP – Strengthened by BoE Rate Announcement
Whilst the US Dollar has seen dampened demand of late, most analysts agree that USD/GBP has room to appreciate in the medium to long term. This is mostly due to speculation that the long period of political uncertainty in the run up to the UK’s EU referendum is likely to have a detrimental impact on GBP. What’s more, the Bank of England’s (BoE) inflation and growth outlook is decidedly more dovish than the Federal Reserve’s. Additionally, stock market shifts are likely to fuel continued demand for safe-haven assets, with the ‘Greenback’ being a safer bet then the Pound at the moment.
EUR/USD – Euro could Extend Losses on ECB Easing Speculation
Following gains recorded earlier in the week, the Euro to US Dollar exchange rate dived on Wednesday. The Euro’s depreciation is partly the result of traders taking profits following recent heavy gains. Also weighing on demand for the common currency was the recent substantial drop in oil prices. This has caused many analysts to slash Eurozone inflation expectations and provoked additional speculation regarding further policy easing from the European Central Bank (ECB). Friday’s Eurozone fourth-quarter Gross Domestic Product data will be the report most likely to provoke EUR volatility over the coming seven days.