GBP/EUR – Fractionally Lower on Soft UK Data
Over the past few days the GBP/EUR exchange rate has advanced considerably. The Pound has in fact staged a modest recovery versus a number of its peers amid concern that ‘Brexit’ jitters had been priced in too early. Supportive of demand for Sterling was a significant improvement in risk-appetite in response to rising global stock prices and improved commodity futures. However, on Wednesday GBP’s uptrend ended after domestic data produced mostly disappointing results. Of particular detriment to demand for Sterling was Average Weekly Earnings, which rose at a slower pace than forecast. The GBP/EUR exchange rate is forecast to be range bound over the coming weeks as both assets are likely to see diminished demand as we draw closer to the EU referendum vote.
GBP/USD – US Dollar Struggles on Reduced Federal Reserve Bets
A combination of improved risk-appetite and reduced Federal Reserve rate hike bets has limited the appeal of the US Dollar over the past few days. Despite the fact that the domestic economy is strong enough to accommodate tighter policy, Fed officials have consistently warned that benchmark interest rates will be approached cautiously. A dovish speech from Federal Reserve New York President William Dudley caused notable USD losses by implying a rate hike is unlikely to occur in the near future. In recent weeks US data has also disappointed, further easing pressure on the Fed to tighten policy. Most recently, a massive contraction in March’s Housing Starts and Building Permits reduced confidence in US economic momentum.
USD/GBP – Political Uncertainty Forecast to Weigh on USD
With a lack of high-impact data for the remainder of the week, the US Dollar is likely to see movement in response to changes in market sentiment. However, political uncertainty has the potential to limit USD gains. This is especially true as some of the more controversial figures gain traction in the race to become Presidential candidates.
EUR/USD – ECB Rate Decision to Provoke Volatility
Both the Euro and the US Dollar have been trending weakly over the past few days amid uncertainty regarding respective central bank outlooks. The European Central Bank (ECB) interest rate decision takes place on Thursday, but the majority of analysts do not expect the policy outlook to be altered at this time. This is because policymakers introduced extensive stimulus measures in March and will want to remain in wait and see mode to assess how impactful those measures have been.
At the same time, however, most analysts do expect ECB policymakers to use additional stimulus measures later in the year with Euro-area inflation showing no sign of improvement. This has been confirmed by ECB President Mario Draghi, who continues to reiterate his stance that stimulus measures will be extended if necessary.
Data Released
April 21st 09:30 UK Retail Sales (YoY) (MAR) 3.8%
April 21st 09:30 UK Public Sector Net Borrowing (MAR) 5.4 billion
April 21st 12:45 EUR European Central Bank Interest Rate Decision 0.0%
April 22nd 14:45 US Manufacturing PMI (APR P) 52.0
April 26th 13:30 US Durable Goods Orders (MAR P)
April 26th 15:00 US Consumer Confidence (APR)