GBP/EUR – Outlook Likely to Remain Gloomy on Last Data of the Week Tomorrow
Yesterday’s public sector borrowing figures showed government spending exceed forecasts. The deficit was already expected to widen markedly, rising to -£8 billion, but in fact overshot projections to clock in at -£9.6 billion. The fact that the government started the new fiscal year with a larger-than-expected overspend prompted a Pound-sell off, from which GBP is slowly recovering today. While there is barely any Eurozone data set for release tomorrow, it is likely the Pound will be the weaker currency in the GBP/EUR pairing. The next estimate of first-quarter GDP is due for release, but analysts expect that predictions for a sharper slowdown than first thought will be reaffirmed.
GBP/USD – Will FOMC Meeting Minutes Firm Interest Rate Hike Bets?
The Pound’s advance today may not last for long, given that fund manager BlueBay announced it has gone short on Sterling, due to its expectations that the UK is heading for a ‘Hard Brexit’ regardless of the outcome of the general election. The fund manages around $55.5 billion and fund manager Mark Dowding said of Brexit, ‘The most significant point that we would make on the UK is that, based on our discussions around Westminster and our discussions around Brussels, it feels that the deal that UK politicians think they can achieve seems an unrealistic pipe dream.’
As well as GDP figures, the index of services – the UK’s key economic sector – is forecast to weaken on the month and during the first quarter, adding further gloom to the outlook of the UK economy.
USD/GBP – US Dollar Soft Ahead of FOMC Meeting Minutes
After several days of being fixated upon political scandals engulfing the White House, market attention has now returned to the interest rate outlook. The Federal Open Market Committee (FOMC) May meeting minutes will be released this evening. Markets already put odds of an interest rate hike in June at 83.1%, so a neutral or hawkish set of minutes will likely push the US Dollar up higher. Should policymakers surprise with a more dovish assessment of the economy or monetary policy outlook, the US Dollar could be set to fall further.
EUR/USD – Greek Bailout Fears Drag Euro Lower
Despite Greece agreeing to implement new austerity measures in order to appease them, Eurogroup creditors were unable to agree this week to the final details that would allow the next tranche of bailout funding to be delivered to Athens. The issue must now be resolved at the June 15th Eurogroup meeting, leaving only a narrow window to unlock the bailout funds before Greece’s debt payments are due in July and the country is forced to default. A speech this afternoon from European Central Bank (ECB) President Mario Draghi has the potential to soften EUR even further.