GBP/EUR – Strong Services PMI May Boost Confidence
In a positive sign for the UK economy, both April’s manufacturing and construction PMIs bettered forecast, indicating a solid start to the second quarter. After the first quarter gross domestic product’s marked slowdown this offered the Pound some encouragement. As Sterling’s post-referendum slide appears to be boosting domestic industry the mood of investors naturally improved, in spite of rising inflationary pressure. If the corresponding services PMI demonstrates similar bullishness then the GBP EUR exchange rate could make strong gains, given the large proportion of economic activity that the service sector accounts for. Any loss of momentum, however, could dent the appeal of the Pound.
GBP/USD – Pound Under Pressure as Brexit Tensions Flare
While domestic data proved largely positive, the mood towards Sterling was soured by the latest Brexit developments. Tensions flared in the wake of a Downing Street dinner, with European Commission President Jean-Claude Juncker reported to be bemused by Theresa May’s attitude towards the negotiations. The two sides appear to be at significant odds even before the formal talks begin. Although markets remain confident that the Conservatives will return to power with a larger majority in the general election hopes for a smooth exit process have dimmed. If political rhetoric does not show any signs of softening then the Pound could struggle to find particular traction against its rivals.
USD/GBP – Higher Unemployment Could Dent US Dollar
An underwhelming US gross domestic product report put downside pressure on the ‘Greenback’, further eroding optimism over the health of the world’s largest economy. March’s personal consumption expenditure data also showed signs of weakness, suggesting that domestic inflationary pressure is not as strong as hoped. As a result the odds of the Federal Reserve continuing its monetary tightening cycle in the near future diminished. USD exchange rates could suffer further losses if April’s labour market data fails to encourage investors, particularly as forecasts point towards a slight uptick in the unemployment rate.
EUR/USD – Volatility Likely on French Presidential Election Outcome
Confidence in the future of the Eurozone was boosted afresh by the news that Greece had come to an agreement with its creditors, unlocking the next tranche of bailout funds. However, while this reduced the risk of a default the Greek debt saga is still far from over. Demand for the Euro is expected to remain somewhat limited ahead of the final results of the French presidential election. While centrist Emmanuel Macron remains the odds-on favourite markets are reluctant to rule out the possibility of a fresh political upset. Comments from European Central Bank (ECB) President Mario Draghi could also weigh on the single currency ahead of the weekend if he maintains a dovish outlook on monetary policy.