GBP/EUR – Pound May Struggle on Slowing UK GDP
Confidence in the underlying economic health of the UK was boosted as a better-than-expected services PMI topped off April’s round of solid PMIs. Even so, the report highlighted the continued acceleration in domestic inflationary pressure. Coupled with a dip in mortgage approvals, this indicated that consumer confidence and finances remain under pressure, suggesting that support for the economy remains somewhat fragile. If Thursday’s visible trade balance shows a widening of the deficit then the Pound could come under further pressure. Another slowdown in the NIESR gross domestic product estimate may also weigh on Sterling, indicating that the economy is not in the strongest shape ahead of Brexit negotiations.
GBP/USD – BoE Meeting and Inflation Rate in Focus
While domestic political developments have been somewhat limited in their impact on market sentiment the Pound remains vulnerable to downside pressure as the snap general election draws closer. If signs point towards the Conservatives facing a greater challenge GBP exchange rates could soften, as a larger Tory majority would create some sense of ease for investors. Further volatility is expected in response to the Bank of England’s (BoE) May policy meeting and quarterly Inflation Report. Any signs of increased hawkishness amongst policymakers could offer the Pound a rallying point, although the BoE is more likely to maintain its generally neutral outlook at this juncture.
USD/GBP – High Odds of June Rate Hike Support USD
A solid labour market report and hawkish-sounding Federal Reserve meeting minutes encouraged investors to raise the odds of a June interest rate hike to a near-certainty. This helped to drive the US Dollar higher across the board, particularly as wider market risk appetite also weakened. However, in the wake of the shock firing of FBI Director James Comey the ‘Greenback’ slumped sharply, with confidence in the Trump administration weakening. As the political implications of the move continue to be felt, the US Dollar may struggle to find particular traction. Nevertheless, a strong showing from April’s consumer price index could add to the likelihood of an imminent Fed rate hike.
EUR/USD – Stronger German GDP Could Boost Euro
Emmanuel Macron’s comfortable victory in the French presidential election failed to particularly boost the Euro this week, with markets having already priced in a win for the centrist. As a result, and with attention turning to the parliamentary elections where the En Marche! movement may struggle to gain a majority, EUR exchange rates weakened. Even so, political jitters have temporarily eased so the Euro could rally on the back of the first quarter German gross domestic product report. If the Eurozone’s powerhouse economy continues to demonstrate robust growth, this could encourage speculation that the European Central Bank (ECB) will take a more hawkish view on monetary policy in the coming months.