GBP/EUR – Gains despite Ongoing ‘Brexit’ Uncertainty
Last week the Pound continued to struggle versus its major peers as the British steel crisis, EU referendum and ‘Panama Papers’ scandal all fuelled political uncertainty. However, the UK asset clawed back two-week’s worth of losses against the single currency following data showing that UK inflation rose by 0.5% between March 2015 and March 2016. Whilst this is still well shy of the Bank of England’s (BoE) target, signs of improving consumer prices eased concerns that the BoE’s next move will be to ease monetary policy. The outlook for Sterling is somewhat mixed, however, as the uptrend from better-than-anticipated inflationary growth has been offset by ongoing political uncertainty surrounding the EU referendum. The latest opinion poll showed that those voting to leave the EU have a marginal majority at this time.
GBP/USD – US Dollar Surges on Euro Weakness
Thanks to a combination of improved Federal Reserve rate hike bets and Euro weakness, the US Dollar has made some notable gains over the past week. Following some comparatively hawkish speeches from Fed officials, bets on a benchmark interest rate hike in the near-term have improved significantly. Even if the Fed only hikes the overnight cash rate once in 2016, policy outlook remains decidedly bullish compared to in the Eurozone and UK. The Euro’s steep depreciation is also supporting demand for the US asset thanks to negative correlation. This was despite disappointing domestic data which showed that March’s Advance Retail Sales unexpectedly contracted by -0.3%, failing to meet with the median market forecast 0.1% sales growth.
USD/GBP – Volatility Forecast on BoE Rate Decision, US Consumer Prices
Thursday will be significant for those trading the USD/GBP exchange rate. Whilst the Bank of England (BoE) interest rate decision is not expected to be hugely impactful, given policymakers are highly unlikely to make any changes at this time, any sign of dissent among policymakers will cause the British Pound to advance. US Consumer Price data will have a significant impact on the USD/GBP exchange rate also, especially if inflation rises as it will pressure the Federal Open Market Committee (FOMC) into reconsidering keeping rates on pause.
EUR/USD – Euro Forecast to Struggle on ‘Brexit’ Uncertainty
Thus far, the impending EU referendum has only had a notably detrimental impact on the British Pound. However, it is undeniable that the Euro is also likely to be massively impacted by a British exit from the European Union. Amid fears that the Euro could crash in the event of a ‘Brexit’, therefore, traders have started to price-in potential damage.