GBP/EUR – British Pound Strengthens on Corrective Trading
After plummeting to a 16-month low in response to Boris Johnson’s support of the EU referendum ‘Leave’ campaign, the GBP/EUR exchange rate has managed to advance from 1.26 to 1.29. Fears Sterling’s decline was overdone and profit-taking have led to the Pound making steady gains versus its major peers. The UK asset is still close to some key multi-month and multi-year lows, however, and there is every chance the Pound will resume depreciation as we draw ever closer to the vote.
Over the last few days the Pound has been making gains irrespective of disappointing domestic data. Both Manufacturing and Construction PMIs showed that output slowed beyond expectations. Thursday’s UK Services PMI will be of significance, not just because the service sector accounts for the greatest portion of British GDP, but because growth in that sector has been well-below expectations thus far in 2016.
GBP/USD – ‘Cable’ Slowly Recovers from 9-Year Low
The Pound Sterling to US Dollar exchange rate has spent the past seven days trending within the range of 1.3839 to 1.4035. Although the GBP/USD exchange rate has made a steady recovery thus far this week, thanks mostly to corrective trading, the Pound is still holding a comparatively weak position against the US Dollar. In general the US Dollar softened versus its major peers irrespective of domestic data this week thanks to heightened concern that the Federal Reserve will not look to tighten policy anytime soon. These fears were not eased when Fed official William Dudley warned that external risks are rising and the Fed will be best maintaining the current ‘wait and see’ stance. That being said, if Friday’s highly influential Non-Farm Payrolls report prints more strongly than expected, ‘Cable’ could return to its previous 9-year low.
USD/GBP – Forecast to Decline on Fed Outlook?
USD/GBP is still holding a strong position, and traders are worried that the Pound could suffer considerable losses in the event of a ‘Brexit’, falling to levels not seen since 1985. Whilst domestic data is not having a huge impact at present with political and geopolitical uncertainties dominating trader focus, there will still be several domestic ecostats with the potential to provoke volatility. US labour market data will be particularly significant as an unexpected reduction in unemployment could pressure the Federal Reserve into tightening the policy outlook sooner than currently anticipated.
EUR/USD – Euro Forecast to Soften as Demand for Financer Assets Retreats
The Euro to US Dollar exchange rate was trending within the range of 1.0831 to 1.1064 over the past seven days. As we draw ever closer to the March ECB policy meeting, in which most traders predict policymakers will either cut the overnight cash rate or extend asset purchases (or both) the Euro declined versus most of its currency rivals. The downtrend was extended on Wednesday after ECB Executive Board Member Benoit Coeure hinted heavily that the ECB has no choice but to make policy even more accommodative to combat low inflation and accelerate economic growth.