GBP/EUR – British Pound Dives on ‘Brexit’ Uncertainty
In general the British Pound has softened versus its major peers over the past seven days thanks to mounting political uncertainty in relation to the EU referendum and the British steel crisis. Domestic data is having a reduced impact on exchange rates but the Pound did manage a short-term bounce back after services data showed output bettered expectations in March. However, the positive services score also highlighted the imbalance between the UK’s three main sectors (services, manufacturing and construction) and stoked fears of slower-than-expected first-quarter economic growth. On Wednesday the Pound continued to depreciate following comments from ex Labour Minister Lord Owen. Owen suggested that the only way the NHS can recover is to avoid the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the US, and this can only be done if the UK votes to leave the EU on June 23rd. Influential domestic data is somewhat lacking for the remainder of the week. However, Tuesday’s inflation figures have the potential to provoke GBP exchange rate volatility.
GBP/USD – US Dollar Rallies on Safe-Haven Demand
Over the past week the US Dollar has racked up some notable gains thanks to a general risk-off environment. A significant drop in the value of commodities initiated heightened demand for safe-haven assets and the revelation of potential illegal activity concerning many global leaders in the ‘Panama Papers’ only added to risk-aversion trends. US economic data hasn’t been particularly impactful since Federal Reserve Chairwoman Janet Yellen effectively stated that fiscal policy will not be data driven. Thursday could see heightened USD exchange rate volatility, however, with the Fed Chief due to make a speech in New York alongside other Fed officials.
USD/GBP – ‘Buck’ to Hold Gains despite US Political Uncertainty
Trader uncertainty is not just having a detrimental impact on demand for the British Pound. With the US Presidential race underway and candidates striving to be elected as representatives for their respective parties, fears that the more controversial figures are gaining traction could hurt demand for the Dollar in the longer-term. However, EU referendum uncertainty is far more pressing and should keep the USD/GBP exchange rate trending higher.
EUR/USD – Euro Forecast to Fluctuate
The US Dollar’s recent gains have weighed on demand for the single currency thanks to negative correlation. Additionally, many traders are not convinced that the European Central Bank (ECB) has ended its rate cut cycle as commodity prices continue to fall and Euro-area inflation remains well below the central bank’s target. However, there is potential for the shared currency to advance as traders seek financer assets in times of risk-aversion. If political uncertainty in the US makes the Dollar a less desirable currency in times of safe-haven demand, traders may turn to the Euro instead. However, trading trends suggest that the EUR/USD exchange rate will resume bearishness in the longer-term given the stark contrast between the ECB and the Fed regarding policy outlook. In terms of influential European data, next week’s German inflation reports have the potential to cause Euro changes.
Data Released
April 7th 12:30 EU ECB Monetary Policy Meeting Minutes
April 7th 22:30 US Fed’s Yellen in New York, with Greenspan, Bernanke and Volcker
April 12th 07:00 EU German Consumer Price Index (YoY) (MAR F)
April 12th 09:30 UK Consumer Price Index (YoY) (MAR)
April 12th 09:30 UK Core Consumer Price Index (YoY) (MAR)
April 13th 13:30 US Advance Retail Sales (MAR) 0.1%