GBP/EUR – Odds of Hawkish BoE Remain Limited
Brexit-based jitters saw a resurgence in the wake of an unexpected widening of the UK trade deficit, which highlighted the country’s vulnerability to a deterioration in trade conditions. Coupled with contractions in manufacturing and construction output, the mood towards the Pound deteriorated once again. Bank of England (BoE) policymakers have continued to express caution over the monetary policy outlook, suggesting that interest rates are unlikely to rise from their historic low any time soon. If rhetoric from politicians continues to point towards the UK facing a hard exit from the E,U this could limit the appeal of Sterling further for the foreseeable future. However, as it stands, French election concerns have helped the GBP/EUR exchange rate advance to within touching distance of 1.18.
GBP/USD – Sterling Under Pressure as Real Wages Fall
There was some disappointment that inflationary pressure had not risen more sharply on the year in March, limiting the likelihood of the BoE returning to a hawkish bias in the near future. Investors were further discouraged by the fact that average weekly earnings had slowed in February, resulting in a fall in real wages. With consumers likely to face an increasing squeeze in coming months, the appeal of the Pound remained muted. If the RICS house price balance shows fresh weakness within the housing market this could add to the bearish mood, undermining hopes that the economy can maintain its resilience ahead of the formal start of Brexit negotiations.
USD/GBP – Safe-Haven Demand Shored up US Dollar
Although the Federal Reserve proved to be more hawkish than expected in the minutes of its March meeting, the US Dollar was knocked back by a mixed non-farm payrolls report. However, while the headline figure disappointed the labour market remained in a robust state of health. With rising geopolitical tensions encouraging greater safe-haven demand the ‘Greenback’ soon returned to a bullish trend. Solid jobless claims figures could add to the positive mood of the US Dollar ahead of the long weekend, although its upside potential is somewhat limited at this juncture. A dip in the University of Michigan confidence index, meanwhile, could encourage USD selling.
EUR/USD – French Election Nerves Continue Building
Rapidly increasing support for the far-left candidate Jean-Luc Melenchon saw worries over the French presidential election weighing on the Euro once again. While centrist Emmanuel Macron remains the favourite in the polls, investors remain wary of the prospect of another major upset. Solid Eurozone investor confidence and economic sentiment surveys were not enough to boost the appeal of the single currency. The raft of finalised Eurozone consumer price index data is unlikely to encourage a rally for EUR exchange rates, with investors expecting confirmation that inflationary pressure weakened at the end of the first quarter. If political risk continues dominating the domestic outlook then the Euro is likely to remain on a softer footing.