GBP/EUR – Strong GDP figures raise concerns over Brexit slowdown
Finalised UK growth figures for the second quarter have printed above expectations, but the report motivated a small drop for the Pound against the Euro. Both on the quarter and on the year GDP accelerated 0.2% (double the gains forecast) to hit 0.6% and 2.2% respectively. While this strong indicator of robust economic performance would usually boost sentiment, investors have reacted glumly. Economists have pointed out that April was an unusually strong month due to the Easter holidays falling in March, meaning that the Q2 data is somewhat inaccurate. Also weighing on sentiment is that fact that production, construction and manufacturing are still below their pre-financial crash levels, with a Brexit-triggered further decline on the cards. The Pound is also likely to remain pressured against the Euro ahead of next week’s Bank of England (BoE) interest rate decision amid speculation the central bank will elect to cut interest rates.
GBP/USD – Retail sales plummet at fastest pace in four years
Also weighing on Sterling today are the latest CBI Retailing Reported Sales figures. GBP/USD consolidated declines following the latest data, with the Pound given no chance to recover from its dovish reaction to the latest GDP figures. The reported sales index is the second CBI measure this week to undermine the Pound, following on from the dire drop in business confidence registered previously. Reported sales dropped from 4 to -14, tumbling unexpectedly into negative territory against forecasts of a slide to 1. These figures represent the weakest reading since January, with grocers and furniture and carpet stores reporting the biggest declines. With the Fed interest rate decision ahead, further GBP/USD movement is likely. Should the Fed hint at a rate hike, Sterling could extend losses. Conversely, dovish commentary from the US central bank may see the Pound march higher against the ‘Greenback’.
USD/GBP – US Dollar ignores durable goods slump ahead of FOMC meeting
The latest economic data has undermined the notion that the US economy is showing signs of strengthening again. Previous durable goods orders figures were revised even lower, extending the decline from -2.2% to -2.8%. June’s preliminary figures failed to post a slowdown in contraction as expected, slumping further to -4% rather than narrowing to the forecast -1.4%. The US Dollar remained strong however, as markets focussed on the upcoming Federal Open Market Committee (FOMC) policy decision. The latest figures are likely to have arrived too late to influence the Fed, meaning hopes for a more hawkish Committee are still high.
EUR/USD – Resilient German consumer confidence keeps Euro positive
Despite the negative correlation between the two currencies, the EUR/USD exchange rate was able to trend above opening levels mid-week even though the US Dollar was strong overall. Investors were relieved that the latest German consumer confidence figure held steady, slipping just -0.1 point. While a drop of -0.2 was forecast, recent poor UK sentiment figures have kept markets wary of post-Brexit shocks. The German GfK survey is the latest piece of data to suggest that Eurozone confidence for both businesses and consumers has been largely unaffected by the Brexit decision. Speculation to this effect has kept the Euro comparatively firm.