Output Data Weakens GBP/EUR, GBP/USD Exchange Rates ahead of FOMC Meeting Minutes

GBP/EUR and GBP/USD Exchange Rates Weakened Below Opening Levels after Poor Sectoral Output Data

After making early gains at the start of the day’s session, Pound Sterling has since fallen back to opening levels versus the Euro and US Dollar following the release of disappointing sectoral output data for February.

Industrial production grew just 0.1% month-on-month and 2.2% year-on-year, beating forecasts for 0.1% and 2.9% respectively.

Manufacturing production posted a surprise -0.2% decline, against forecasts of 0.2% growth, meaning that year-on-year production came in at 2.5% compared to predictions for 3.3% growth.

Markets have also been disappointed by the latest seasonally adjusted construction output figures, which showed a -1.6% decline on the month, compared to the 0.7% growth expected, meaning year-on-year output has contracted by -3%.

This has caused the Pound to soften as markets fear the weak output data will give the Bank of England (BoE) cause to hold fire on hiking interest rates in May as they are currently expected to.

Even a better-than-expected trade balance, showing a deficit of just -£965 million compared to the anticipated -£2.6 billion, has been insufficient to support the Pound.

GBP/EUR Exchange Rate Slides after ECB President Draghi Downplays Trade War Fears

The latest comments from European Central Bank (ECB) President Mario Draghi have nudged the GBP/EUR exchange rate lower today after the policymaker-in-chief downplayed the impact upon the Eurozone of the current trade tariffs levied by the US and China against each other.

Draghi was speaking at an ECB event for students and thus did not discuss monetary policy much, meaning he had little chance to perform his usual trick of sending the Euro nosediving with a set of pessimistic comments.

However, investors were cheered slightly by Draghi’s claims that the trade tariffs already imposed by the US against China and vice versa will have little negative impact on the Eurozone economy.

Draghi previously warned that a trade war could significantly harm the Eurozone economy, so the fact that he seems little concerned by the current developments, even though he did warn the real danger is retaliation, suggests that unless the situation should escalate, recent changes to the global trading landscape won’t impact the Governing Council’s monetary policy decisions.

As well as gaining against Pound Sterling, the Euro was also able to gain versus the US Dollar this morning, with the latter weakened by a lack of demand ahead today’s Federal Open Market Committee (FOMC) meeting minutes.

GBP/USD Holds Opening Levels despite Strong US Inflation Data; Markets Awaiting FOMC Meeting Minutes

Despite a strong set of inflation figures from the US this afternoon, the GBP/USD exchange rate has been able to hold its opening levels thanks to market focus on the upcoming FOMC meeting minutes.

Although month-on-month prices declined -0.1%, against forecasts of stagnation, overall price growth accelerated from 2.2% to 2.4% year-on-year and core price growth ticked up from 1.8% to 2.1%.

This puts inflation above the Federal Reserve’s target range and could end the debate amongst policymakers over whether the sluggish price growth seen over the past few months was temporary or signs of a more systematic problem.

Average weekly earnings also grew at an accelerated pace on the year last month, with growth climbing from 0.6% to 0.9%.

All this provides a strong case for the Fed to consider raising its estimates for the number of interest rate hikes the US economy will require – and can sustain – over the remainder of the year.

However, markets have yet to buy into the US Dollar as the FOMC meeting minutes are not due out for a few more hours.

GBP/EUR Forecast to Strengthen, GBP/USD Exchange Rates to fall if FOMC Meeting Minutes Reveal Hawkish Policymaker Outlook

The GBP/EUR exchange rate could receive a boost later today, while the GBP/USD exchange rate may be set to fall, if the latest FOMC meeting minutes reveal that policymakers are feeling more upbeat about the economic outlook and may therefore consider hiking interest rates more than the twice currently expected.

This would see markets rush back into the US Dollar, especially given today’s strong inflation and wage data, pushing the Euro lower thanks to the pairing’s inverse correlation.

Sterling will benefit by proxy, advancing into the space left by a falling Euro, although against the US Dollar the Pound could dive.

Laura Parsons

Laura has been working in the financial services sector since 2012 and provides currency news updates for a number of online and print publications. Over the years she has produced exchange rate analysis for publishers like French Property News, The Express, The Telegraph and Forbes.

Contact Laura Parsons