GBP Exchange Rate Forecast: Pound’s Bull Run Ends on Weak Sales and New Trade War Fears

GBP/EUR Exchange Rate: BoE Hawkishness Fails to Extend Pound’s Bullish Run

While the Bank of England (BoE) proved rather more hawkish than expected at its March policy meeting this didn’t prove to be enough to give the Pound any additional boost.

Although two policymakers voted in favour of an immediate interest rate hike, increasing the odds of a May policy move, GBP exchange rates lacked much positive momentum in the wake of the announcement.

Even so, as the latest BoE Agents’ summary of business conditions also proved rather optimistic in tone, the downside potential of Sterling still looks limited at this juncture.

So long as investors see no reason to doubt the prospect of a May interest rate hike, though, GBP exchange rates are unlikely to see significant losses in the near term.

GBP/USD Exchange Rate: Weaker Retail Sales Dent UK Economic Outlook

GBP exchange rates struggled to regain their bullish trend in the face of underwhelming domestic data this week, with mortgage approvals and retail sales figures both falling short of forecasts.

Even though the sharp decline in the CBI reported sales index was largely ascribed to the snow and ice seen in early March, confidence in the economic outlook was still muted.

Unless consumer spending starts to pick up once again in the coming months there is a risk the UK could lose further economic momentum.

Any uptick in February’s net consumer credit figures, due out on Thursday, could offer the Pound some degree of support ahead of the Easter weekend.

Furthermore, if the UK’s proposed new plan for the Irish border meets with a positive reaction this could give Sterling a more significant boost. That said, worries over Brexit look set to remain a key headwind for some time to come.

USD/GBP Exchange Rate: US-China Trade Developments Encourage US Dollar Volatility

Speculation over the possibility of a US-China trade war put some pressure on the US Dollar after the Trump administration signalled its intent to impose further tariffs on China.

However, as the Chinese response appeared to be on a smaller scale than feared these worries started to ease in the wake of the weekend, even though market jitters remain.

A positive reading in February’s personal consumption expenditure headline figure may give USD exchange rates a more substantial rallying point on Thursday.

If the US economy continues to demonstrate signs of resilience and higher inflation this could encourage bets that the Federal Reserve will adopt a more aggressive approach to monetary policy in 2018.

EUR/USD Exchange Rate: Rising German Inflation to Offer Euro Rallying Point

Although the fourth quarter French gross domestic product figure was unexpectedly revised higher this has failed to translate into support for EUR exchange rates.

Markets remain concerned that the Eurozone’s economic momentum is starting to flatten out, diminishing the upside potential of the single currency in the face of a recovering US Dollar.

As forecasts point towards an uptick in the latest German consumer price index data, the Euro could return to a stronger footing.

Evidence that inflationary pressure is still building within the Eurozone’s powerhouse economy is likely to encourage European Central Bank (ECB) policymakers to adopt an approach of monetary tightening in the coming months.

Hannah Wilson

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