GBP/EUR – British Pound Steadies on Consolidative Trade
Despite ongoing concerns that uncertainty surrounding the EU referendum will weigh on British growth and demand for Sterling, the UK Pound has seen recent gains. The appreciation can be linked to a combination of consolidative trading (as investors take advantage of GBP’s low trade weighting) and a softer US Dollar. Meanwhile, this week’s British data docket is comparatively quiet with all eyes looking towards Thursday’s Consumer Confidence and fourth-quarter Gross Domestic Product reports. It is worth remembering, however, that any Sterling gains are likely to be temporary given dampened investor sentiment as we draw ever closer to the June 23rd EU referendum.
GBP/USD – Dovish Yellen Weighs on USD Exchange Rates
In recent times the US Dollar strengthened considerably in response to several hawkish comments from Federal Reserve officials. Many officials, including some of those on the Federal Open Market Committee (FOMC), stated that domestic data will force the Fed into tightening monetary policy irrespective of external risks and USD overvaluation. However, comments from Federal Reserve Chairwoman Janet Yellen quashed hopes of a near-term rate hike after stating that the central bank has to be very cautious; highlighting China’s economic woes as a significant concern. Whilst the US Dollar certainly tumbled in the wake of Yellen’s comments, the depreciation was somewhat slowed as the Euro failed to capitalise on positive German inflation data.
USD/GBP – Forecast to Fluctuate on US Labour Market Data
Over the coming days there will be several economic data publications with potential to provoke USD/GBP exchange rate volatility. For those invested in the US Dollar, Friday’s labour market and manufacturing data will be in focus. If labour conditions in the US continue to show signs of improvement it will add significant pressure on to FOMC members to tighten monetary policy.
The US ISM Manufacturing report for March will also be of significance. The previous reading showed that output dropped into contraction territory, so investors will be hoping that manufacturing activity swings back above the 50 mark that separates growth from contraction.
In terms of British data, a positive result from Consumer Confidence and Gross Domestic Product reports could provoke Sterling appreciation. However, there is every chance that data won’t be hugely impactful as political uncertainty continues to drive movement.
EUR/USD – Euro Forecast to Struggle despite Rising Inflation
Whilst the Euro made some small gains in response to US Dollar weakness, the appreciation has been minimal. This is mostly due to speculation that the European Central Bank (ECB) will be forced into easing policy even further as commodity prices collapse.
On Wednesday German inflation data showed consumer prices bettered expectations in March. However, the common currency failed to capitalise on the data after a separate report showed Eurozone Economic Confidence deteriorated beyond forecasts.
Perhaps the most significant Euro-area ecostats this week will be the publication of Eurozone inflation data due on Thursday. If the positive results from Germany’s inflation gauge translates into inflationary growth in the Eurozone as a whole, the common currency will be very likely to recover recent weakness.