GBP, EUR, USD Exchange Rate Forecast: US Dollar Rebounds Despite Underwhelming Jobs Data

Pound to Euro (GBP/EUR) Exchange Rate Declines amid Doubts Over Theresa May’s Authority

The Pound to Euro (GBP/EUR) exchange rate was left struggling as Theresa May’s much-anticipated cabinet reshuffle turned out to be less of a shakeup than expected.

With some ministers reportedly refusing the Prime Minister’s request to move, the relative weakness of May’s position was highlighted, reigniting political jitters.

Now attention looks likely to turn increasingly towards Brexit, with both sides gearing up for the second round of negotiations now that the New Year has been and gone.

Unless there are signs that a transition deal is likely to be agreed, the Pound could come under further pressure, particularly if the UK or EU negotiators release hostile commentary.

Disappointing UK Trade Data Pushes Pound to US Dollar (GBP/USD) Exchange Rate from 3-Month High

Pound Sterling (GBP) exchange rates took little encouragement from news that the UK visible trade balance had widened further than forecast to -12.23 billion in November. The news left GBP/USD down from its recent three-month high.

This disappointing showing offered a reminder of the economy’s vulnerability to any deterioration in trade conditions, exacerbating lingering worries over the ultimate impact of Brexit.

While the NIESR gross domestic product estimate for the fourth quarter of 2017 bettered estimates, pointing towards growth of 0.6%, this failed to particularly shore up the GBP/USD exchange rate on Wednesday.

Confidence could pick up, however, if the Bank of England’s (BoE) latest Credit Conditions and Bank Liabilities surveys paint a more positive picture of the domestic outlook.

On the other hand, any fresh expressions of concern over UK credit conditions could see the Pound slump.

US Dollar (USD) Exchange Rates Supported by Fed Rate Hike Speculation

Although the US non-farm payrolls report for December proved rather lacklustre, with the headline figure falling significantly short of forecast, the US Dollar still returned to a stronger footing.

After seeing a long run of bearishness over the holiday period, USD exchange rates were due something of a correction, and were spurred on by hawkish commentary from Federal Reserve policymakers.

As San Francisco Fed President John Williams expressed confidence in the prospect of three interest rate hikes coming over the course of 2018, the US Dollar was encouraged to trend higher across the board.

Even so, if Friday’s US consumer price index data fails to point towards rising domestic inflation it could undermine bets that the Fed is on track to raise interest rates again in the near future.

Dovish ECB Outlook Pressures Euro to US Dollar (EUR/USD) Exchange Rate

After December’s Eurozone consumer price index data failed to highlight an uptick in inflationary pressure as markets had hoped, the mood towards the Euro to US Dollar (EUR/USD) exchange rate soured.

The odds of the European Central Bank (ECB) returning to a more hawkish policy outlook in the coming months consequently diminished, with the long-running quantitative easing program looking set to remain in place for some time to come.

Even as the Eurozone unemployment rate and German trade balance continued to show improvement, this was not enough to bolster the single currency.

However, if the ECB’s December meeting minutes show signs of growing hawkishness this could offer EUR exchange rates a rallying point on Thursday.

Hannah Wilson

Contact Hannah Wilson