GBP/EUR – Dives as ‘Brexit’ Uncertainty Returns
In contrast to last week, which saw Sterling rally in the face of easing ‘Brexit’ concerns, the British unit has struggled in recent days. The depreciation is mostly due to the Pound’s increased sensitivity to opinion polls regarding the EU referendum. The latest set have shown the vote to be much closer than economists had previously predicted. Whilst domestic data has been less impactful against the backdrop of volatility caused by political developments, ongoing concerns regarding the UK’s tepid sectoral output has caused many to reduce forecasts for second-quarter growth. Manufacturing output eclipsed expectations by posting moderate growth in May, but the weak output is likely to continue to drag on the economy. The Pound to Euro (GBP/EUR) exchange rate has dropped from a monthly high of 1.32 and is currently trending in the region of 1.29.
GBP/USD – Weakens despite US Political Uncertainty
Over the past seven days the GBP/USD exchange rate has dropped from a high of 1.47 to trade in the region of 1.44 today. Initially the US Dollar benefitted from a surprisingly hawkish remark from Federal Reserve Chairwoman Janet Yellen, who stated that it was now ‘appropriate’ to hike the official cash rate. However, a combination of political uncertainty and profit taking saw the US asset cool from weekly highs. With increased fears regarding controversial Presidential candidate Donald Trump’s ever growing popularity, political uncertainty continues to hamper investor confidence. Additional USD headwinds can be linked to renewed uncertainty regarding the timing of the next Federal Reserve rate hike, given that domestic political uncertainty and EU referendum uncertainty do not make for a good platform to alter policy.
USD/GBP – US Data to Provoke Movement
With the Fed’s policy outlook becoming increasingly data dependent, there are a number of significant US ecostats likely to be a key driver of volatility. Traders will be paying particular attention to Friday’s US labour market data. A poor result from Unemployment Rate or Change in Non-Farm Payrolls reports will ease pressure on the Federal Open Market Committee (FOMC) and likely provoke a USD depreciation.
EUR/USD – Climbs as EUR Exchange Rates face Upside Risks
As traders look ahead to Thursday’s European Central Bank (ECB) interest rate decision, the Euro is trending higher versus a number of its major peers. The appreciation was initiated by speculation that ECB policymakers will not attempt to alter stimulus measures at this time given the need to better gauge Fed policy outlook. The ECB will also be unlikely to make any changes ahead of the UK’s EU referendum. If the ECB stalls as predicted, and US labour market data disappoints, there is a high chance of significant Euro gains.