GBP/EUR – Weak First Quarter Growth Drags on Pound Sterling
Confirmation that the UK economy had slowed in the first quarter of 2018 left the Pound (GBP) on a weaker footing heading into the weekend.
Markets were not impressed to find that the second estimate of the quarterly growth rate held steady at just 0.1%, undermining confidence in the domestic outlook.
This prompted the odds of an imminent Bank of England (BoE) interest rate hike to decline further, dragging GBP exchange rates lower.
However, Pound Sterling could find a rallying point if May’s raft of UK PMIs demonstrate signs of improvement on the month, pointing towards stronger second quarter growth.
GBP/USD – GBP Exchange Rates Vulnerable to Rising Consumer Debt
With the UK and EU showing no signs of progress towards an agreement on the issue of the Irish border, after Brexit, Sterling (GBP) exchange rates remain under pressure.
Fresh signs of political turmoil within the EU also did little to improve the appeal of Pound Sterling as market jitters increased.
April’s net consumer credit figure may weigh on the Pound if the data suggests that domestic debt levels have continued to rise.
As long as investors see reason to doubt the prospect of the BoE raising interest rates in 2018 the Pound is likely to remain biased to the downside.
USD/GBP – Strong Jobs Data to Boost US Dollar Demand
An increased sense of market risk aversion benefitted the US Dollar (USD), even as the Trump administration made fresh threats of tariffs against China.
A solid uptick in the US consumer confidence index offered further support to USD exchange rates on Tuesday, suggesting a continued sense of optimism within the world’s largest economy.
The latest Federal Reserve’s Beige Book may encourage additional demand for the US Dollar, providing the report paves the way for the Fed to tighten monetary policy more aggressively over the coming months.
If Friday’s non-farm payrolls report points towards a further tightening of the US labour market, this could give the US Dollar a fresh boost across the board.
As long as wage growth also continues to pick up, USD exchange rates look set to end the week on a positive note.
EUR/USD – Italian Political Drama Keeps Euro under Pressure
Political turmoil erupted in Italy over the weekend as President Sergio Mattarella vetoed the appointment of the Eurosceptic finance minister proposed by the Five Star Movement-League coalition.
As the populist alliance appeared to collapse, and Mattarella opted to appoint a former International Monetary Fund (IMF) official as interim prime minister, this provoked fears of a fresh Eurozone crisis.
Confidence in the Euro (EUR) deteriorated significantly in the wake of these developments, especially as a vote of no confidence looms over the Spanish Prime Minister, Mariano Rajoy, on Friday.
Even so, the mood towards the single currency could pick up in the short term if the latest Eurozone consumer price index proves encouraging.
Evidence that inflation is pushing towards the European Central Bank’s 2% target is likely to offer EUR exchange rates a boost on Thursday.