GBP/EUR – UK Economy Displayed Fresh Signs of Weakness
Sterling remained under pressure in the wake of an unexpectedly weak UK Services PMI, which showed that the sector had performed more weakly than expected in February. As UK economic growth has been almost exclusively driven by the service sector in recent months, this disappointment naturally encouraged investors to continue to sell out of the Pound. The latest RCIS house price balance is unlikely to offer any particular encouragement to GBP exchange rates as the measure is expected to point towards a weakening in the domestic housing market. With Brexit-based uncertainty persisting, even an upside surprise may struggle to support greater Sterling strength.
GBP/USD – Article 50 Setback Weighed Heavily on Sterling
After the House of Lords voted to amend the Article 50 bill, backing a proposal to give MPs a final vote on the government’s Brexit deal before it can be implemented, the GBP/USD exchange rate slumped. While the move could potentially prevent a ‘hard’ Brexit it could jeopardise Theresa May’s timetable, creating further uncertainty within the markets. As forecasts for January’s raft of production and trade balance data are less-than-positive the Pound could extend its recent run of losses further. If the UK trade deficit is found to have widened more at the start of the year confidence in the outlook of the domestic economy could diminish, leaving Sterling on a weaker footing.
USD/GBP – Lower Unemployment Could Boost US Dollar
With markets increasingly confident that the Federal Reserve will opt to raise interest rates in the near future, the US Dollar has held onto its bullish form. A disappointing slowdown in January’s consumer credit figure was not enough to dent the USD/GBP exchange rate, with focus already shifted towards Friday’s payrolls data. February’s unemployment rate is expected to have dipped from 4.8% to 4.7%; a result which would underline the inherent strength in the domestic labour market. However, with the odds of an imminent Fed rate hike largely priced into the ‘Greenback’ it may struggle to maintain its upwards momentum in the near term.
EUR/USD – Euro Jittery Ahead of ECB Meeting
As worries continued mounting over the outcome of the French presidential race and the possibility of victory for far-right candidate Marine Le Pen, the appeal of the Euro diminished. The weakness of the latest raft of Eurozone Retail PMIs also dragged on the single currency, suggesting that domestic growth remains fragile. Even so, Euro exchange rates could recover some strength if the European Central Bank (ECB) proves to be more bullish in outlook at its March policy meeting. Should policymakers take a more cautious view on monetary policy, though, the single currency could fall further out of favour.