Pound Sterling Exchange Rate News: GBP Struggles against EUR on Softening Economic Data despite ECB Dovishness

GBP/EUR Exchange Rate: Surprisingly Weak First Quarter Growth Dents Pound

The Pound (GBP) came under significant pressure last week as the first quarter UK gross domestic product fell short of forecast.

As economic growth slowed to just 0.1% on the quarter this encouraged investors to pile out of the Pound, with the slowdown evidently due to more than just the adverse weather conditions seen in March.

With the economy continuing to lose momentum the odds of an imminent Bank of England (BoE) interest rate hike declined sharply, putting further pressure on GBP exchange rates.

Lingering uncertainty over the UK’s future relationship with the EU is likely to limit the potential for any GBP rally in the near term, unless there are signs of significant progress in negotiations.

GBP/USD Exchange Rate: Markets Unsettled by Underwhelming UK Manufacturing PMI

Hopes that the UK economy would see a rebound at the start of the second quarter were dashed by April’s manufacturing PMI, which fell to a seventeen-month low.

While the manufacturing sector only represents a small proportion of UK economic activity this slowdown does not bode well for the wider growth outlook.

Although the corresponding construction PMI showed a solid rebound on the month this was not enough to shore up GBP exchange rates on Wednesday.

A stronger showing from the services PMI, however, could offer the Pound a solid rallying point.

If the service sector can demonstrate signs of resilience this should help to limit the vulnerability of GBP exchange rates.

USD/GBP Exchange Rate: Tightening Labour Market Forecast to Benefit US Dollar

US Dollar exchange rates remained on a generally bullish trend even as global geopolitical tensions continued to ease.

With markets confident that the Federal Reserve will continue to tighten monetary policy over the coming months, investors saw little reason to sell out of the US Dollar.

A better-than-expected annualised gross domestic product reading and solid manufacturing sector data helped to boost confidence in the underlying strength of the world’s largest economy.

If Fed policymakers prove more upbeat at the May policy meeting this is likely to give USD exchange rates a fresh boost across the board.

Further support could be in store if Friday’s US unemployment rate finally drops to 4.0% after missing forecasts for two months.

EUR/USD Exchange Rate: ECB Dovishness Keeps Euro under Pressure

European Central Bank (ECB) President Mario Draghi indicated that there had been no specific discussion of monetary policy at April’s meeting, leaving the Euro on a weaker footing.

With the central bank looking set to leave its quantitative easing programme in place for some time to come the appeal of the single currency was generally limited.

A fresh loss of momentum in the first quarter Eurozone gross domestic product put additional pressure on EUR exchange rates, denting confidence in the economic outlook.

However, if the latest Eurozone consumer price index betters forecasts to show an uptick in inflationary pressure, this could offer the Euro a rallying point.

Weaker Eurozone services PMIs could nevertheless add to the bearish mood of EUR exchange rate traders ahead of the weekend.

Hannah Wilson

Contact Hannah Wilson