GBP/EUR – Sterling Volatile on BoE Speculation
Demand for the Pound surged in the wake of the Bank of England’s (BoE) interest rate decision, with policymakers unexpectedly split on the matter. Known hawk Kristin Forbes voted for an immediate 25bpt rate hike, raising hopes that the Bank could shift from its neutral outlook sooner than anticipated. This optimistic view was cemented by a higher-than-expected jump in UK inflation, which rose to 2.3% in February. However, as the majority of policymakers have stated their intention to look through some post-referendum inflation and consumer spending looks set to fall, Sterling may struggle to maintain a bullish outlook for long.
GBP/USD – Strong Retail Sales Could Shore up Pound
With the activation of Article 50 set for the 29th March, tensions over Brexit have started flaring again. As the Scottish parliament looks set to vote in favour of a second independence referendum the future of the UK seems in question, particularly as Theresa May is expected to reject the call. Any increase in political uncertainty is likely to weigh on the Pound, particularly as Brexit negotiations are expected to be fraught. Even so, if February’s retail sales figures point towards resilient consumer spending then GBP exchange rates could find a fresh rallying point.
USD/GBP – Less Hawkish Fed Diminished US Dollar Appeal
Although the Federal Reserve raised interest rates at its March meeting, in line with market expectations, this was not enough to prevent a sharp slump in the US Dollar. The ultimate tone of the meeting proved to be more cautious than anticipated, suggesting that monetary policy is likely to be tightened at a slower pace. Growing doubt over the Trump administration’s ability to deliver on its promises of growth-supportive economic policies has also dampened the mood towards the ‘Greenback’. Even if the latest durable goods orders data demonstrates continued strength within the economy, USD exchange rates are likely to remain under pressure amid policymaker commentary and political developments.
EUR/USD – Reduced Fears of Populist Upsets Boost Euro
After far-right candidate Geert Wilders fell short in the Dutch election, the appeal of the Euro picked up. Market concern over the prospect of further populist upsets consequently diminished, particularly as the polls continued indicating that Marine Le Pen could also lose out in the French presidential election. However, with the European Central Bank (ECB) looking set to maintain its loose monetary policy for the foreseeable future, support for the single currency remains relatively fragile. If the latest raft of Eurozone PMIs points towards a slowing in domestic growth then the Euro may struggle to hold onto its recent gains ahead of the weekend.