Today’s Pound Sterling Headlines
Downbeat IFS report adds to Pound Sterling pressure – GBP softens versus most of the majors.
GBP/EUR exchange rate down -50 pips – Eurozone PMIs impress.
GBP/USD exchange rate dips from 5-week high – CAD lower as Canadian retail sales disappoint.
Sterling could rally on Brexit progress – UK PM May to offer higher Brexit divorce bill.
Pound Sterling (GBP) Exchange Rates Slide as Britain Faces Two ‘Lost Decades’ of Earnings Growth
Having weathered the storm of the Autumn Budget and reduced forecasts for economic growth on Wednesday, Pound Sterling (GBP) exchange rates suffered broad losses yesterday amid further economic warnings.
A downbeat report from the Institute of Fiscal Studies (IFS) suggested that Britain was facing two ‘lost decades’ of earnings growth and that UK national debt would not return to pre-financial crash levels until ‘well past the 2060s’.
The IFS also mentioned that GDP would be 3.5%, or £65 billion, weaker in 2021 than was forecast two years ago.
The sobering figures appeared to weigh on demand for the Pound, as analysts concluded that subdued economic activity and depressed real wage growth would most likely persuade the Bank of England to maintain a cautious approach to monetary policy in the medium-term.
The Pound’s fortunes during today’s session will likely depend on the success of UK Prime Minister Theresa May’s visit to Brussels. If the PM makes an improved Brexit offer and it is well received then Sterling could rally, if progress appears unlikely then GBP could be hit.
Pound to Euro (GBP/EUR) Exchange Rate Down -50 Pips but Dovish ECB Could Hold Single Currency Back
The Pound to Euro (GBP/EUR) exchange rate tumbled by around half a cent yesterday as predictions of economic strife appeared to sour investor sentiment towards Sterling.
Across the Channel, the single currency was boosted by news that private sector output accelerated at the start of November. The latest PMI showed that both services and manufacturing activity increased, driving the composite Eurozone index up unexpectedly from 56.0 to 57.5.
‘Patience, persistence and prudence’ – that’s what policymakers need, according to the latest minutes from the European Central Bank.
The ECB communiqué conveyed optimism regarding the region’s growth outlook. However, the outlook for inflation was a little less rosy, suggesting that a ‘substantial degree of monetary policy accommodation’ was likely needed for the foreseeable future.
The ECB’s dovish outlook could continue to constrain the Euro over the coming weeks and months.
Pound to US Dollar (GBP/USD) Exchange Rate Down from 5-Week High
The GBP/USD exchange rate softened from a five-week high yesterday as profit-taking took the Pound lower during holiday-thinned trade.
A soft outlook for UK growth and wages means the BoE is unlikely to embark on an ambitious hiking cycle anytime soon. During the Thanksgiving Holiday period lower trading volumes can lead to accentuated moves, however, yesterday’s slender -15 pip depreciation in GBP/USD did not appear to come under that category.
The Pound could find itself nursing further losses this afternoon, when the US manufacturing PMI is tipped to rise from 54.6 to 55.0.
Pound to Canadian Dollar (GBP/CAD) Exchange Rate Jumps on Soft Canadian Retail Sales Report
Sterling registered its only significant gains of the day against the Canadian Dollar (GBP/CAD) yesterday.
Demand for CAD plummeted following news that Canadian retail sales had only increased 0.1% in September, which was much less than the 1.0% expansion that economists had pencilled in.
With Bank of Canada tightening bets already on the slide, the North American currency suffered following the surprisingly soft result.
Pound to Australian Dollar (GBP/AUD) Exchange Rate Could Rally on Brexit Progress
Although UK GDP was confirmed at 0.4% in the third quarter, avoiding any fresh scares, the outlook for British growth appears tepid and demand for Sterling was hit yesterday by the IFS’ claim that the UK was on track to lose two decades of earnings growth.
However, GBP/AUD appears to be on an upward trajectory and further Sterling gains are entirely likely if UK Prime Minister Theresa May manages to make any progress in her upcoming trip to Brussels to discuss Britain’s Brexit bill.
Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Depreciates -40 Pips
The Pound to New Zealand Dollar (GBP/NZD) exchange rate cooled by around -40 pips yesterday as demand for Sterling was hit by cautionary reports on the outlook for the British economy.
The Pound could recover if PM Theresa May’s Brussels visit goes well, while a Brexit setback could drive GBP/NZD down further.
Data Affecting Today’s GBP Forecast
14:45 USD Markit US Manufacturing PMI (NOV P)
09:00 EUR German IFO Business Climate (NOV)