Pound Sterling Forecast: GBP/EUR, GBP/USD Exchange Rates Sink, GBP/NZD Hits 2.5-Month Low

Pound Sterling to Euro, US Dollar Exchange Rates Sink on Widening Trade Deficit

The Pound Sterling to Euro (GBP/EUR) and Pound Sterling to US Dollar (GBP/USD) exchange rates softened yesterday as a rising trade deficit outweighed upbeat manufacturing and growth numbers.

Manufacturing production printed at 0.4% for November, beating forecasts of 0.3% and causing the annualised figure to hit 3.5%, compared to calls for 2.8%.

Demand for British factory goods remained robust, both at home and abroad, and firms are confident that the sector will continue to perform well in 2018.

A separate report, from the National Institute of Economic and Social Research (NIESR), suggests that British growth accelerated from 0.4% to 0.6% in the final quarter of last year. If accurate, the estimate suggests GDP growth of 1.8% in 2017.

However, demand for the Pound did not jump in reaction to these data prints because investors were concerned with an unexpected widening of the government trade deficit. The November trade balance came in at -£12.3 billion, upsetting forecasts of -£10.9 billion.

Pound to Euro (GBP/EUR) Exchange Rate Dips Ahead of ECB Minutes Report

The Pound to Euro (GBP/EUR) exchange rate tumbled by around a third of a cent yesterday as poor trade data reduced the appeal of the UK currency.

We could, however, see GBP/EUR move back towards three-week highs during today’s session if the European Central Bank’s December meeting minutes report shows signs that policymakers are planning to leave interest rates low for longer.

With Eurozone inflation not tipped to hit the bank’s 2.0% target until past 2020 there is every chance that the ECB report will feature dovish rhetoric. On the other hand, a more optimistic communiqué from the central bank could give the single currency an extra boost versus Sterling.

Pound to US Dollar (GBP/USD) Exchange Rate Briefly Rallies on Dark Mutterings of Chinese Move to Curb Purchases of US Treasuries

The Pound to US Dollar (GBP/USD) exchange rate rallied initially yesterday in reaction to dark mutterings that China may be looking to ‘slow or halt’ its purchases of US Treasuries. However, profit-taking soon kicked in and ‘Cable’ gave back its gains by the end of the London session.

The ‘Greenback’ plummeted across the board following a Bloomberg report indicating that Chinese officials had recommended toning down Treasury purchases, which could have been a response to the 10-year interest rate peaking above 2.5%, or could be related to rumours that the US government is planning sanctions against China. Either way, the US Dollar depreciated when the report hit newswires, but Sterling was unable to hold onto its morning gains.

Pound to Canadian Dollar (GBP/CAD) Exchange Rate Rises on Trump NAFTA Speculation

The Pound to Canadian Dollar (GBP/CAD) exchange rate recovered from early losses yesterday as a wildly disappointing Canadian construction sector report weighed on demand for the ‘Loonie’. While the commodity-correlated Canadian Dollar was supported by three-year high oil prices, demand softened when it was announced that domestic building permits shrunk -7.7% in November, marking a significant turnaround from October’s +4.4% gain.

Sterling went on to appreciate by around 70 pips as demand for the ‘Loonie’ was damaged further by rumours that US President Donald Trump was preparing to pull out of the North American Free Trade Agreement (NAFTA).

Pound to Australian Dollar (GBP/AUD) Exchange Rate Slides -60 Pips

The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate edged lower by around -60 pips yesterday as a rising domestic trade deficit weakened the appeal of the Pound.

Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Sinks to 2.5-Month Low

The Pound to New Zealand Dollar (GBP/NZD) exchange rate dropped -130 pips yesterday, sliding to a two-and-a-half-month low.

And some analysts are now calling for further ‘Kiwi’ strength in 2018 as markets readjust following the shock of last year’s Labour coalition government.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard