GBP/EUR – Interest Rates Kept on Hold at 0.75% as Cautious BoE Message Fails to Keep Pound Down
Although the Bank of England’s (BoE) Mark Carney maintained a cautious outlook at its first policy meeting of 2019 – saying that the ‘Fog of Brexit’ was afflicting the economy – this failed to keep the Pound on the back foot for long, with GBP/EUR rising 0.4% on the day.
In the end, the bank chose not to adjust UK interest rates, keeping them at 0.75%.
While the BoE noted that the next interest rate move could be either up or down, with Brexit-based uncertainty clouding the economic outlook, GBP exchange rates soon returned to an uptrend.
Markets were ultimately encouraged by Governor Mark Carney’s comments suggesting that a no-deal Brexit is still not the most likely outcome, even though the Irish border issue remains.
Unless Theresa May can show signs of moving closer to an agreeable Brexit deal, however, the Pound may struggle to hold onto its latest bout of positive momentum for long.
GBP/EUR is currently trading up around 0.4% at a rate of €1.1427 on the inter-bank market.
GBP/USD – Weak UK PMIs Raise Worries Ahead of GDP Data
Confidence in the outlook of the UK economy has deteriorated in the last week, driven by the underwhelming nature of January’s PMIs.
As the service sector fell into a state of near-stagnation at the start of 2019, with the PMI sliding to just 50.1, this dented the appeal of the Pound.
If the fourth quarter UK gross domestic shows similar signs of deterioration on Monday this could prompt a sharp decline for GBP exchange rates.
On the other hand, a more resilient performance from the UK economy may offer the Pound a rallying point, even though the BoE lowered its growth forecasts on Thursday.
GBP/USD is currently trading up around 0.3% at a rate of $1.2974 on the inter-bank market.
USD/GBP – Strong Payrolls Report Encourages US Dollar Gains
As a higher-than-expected number of jobs were added to the US economy in January this gave the US Dollar a boost against its rivals.
Although the corresponding unemployment rate also saw a surprise uptick from 3.9% to 4.0% investors took a positive view of the US outlook, with the impact of the recent government shutdown appearing minimal.
Even so, Federal Reserve policymakers have signalled a greater sense of dovishness, further diminishing the odds of interest rates rising again in the near future.
If the US consumer price index eases further next week this could increase the pressure on USD exchange rates, especially if Fed commentary remains dovish in nature.
USD/GBP is currently trading down around 0.3% at a rate of £0.7708 on the inter-bank market.
EUR/USD – Italian Recession Weighs Heavily on Euro
A weak performance from the Italian economy in the fourth quarter of 2018 saw it fall back into recession for the third time in a decade, dragging the Euro lower across the board.
Confidence in the single currency was further eroded by underwhelming German factory orders and industrial production data, which suggest that the Eurozone’s powerhouse economy is also slowing.
This led the European Commission to cut its 2019 growth forecasts dramatically, driving EUR exchange rates into a fresh slump.
If the German trade surplus narrows as forecast this could see the Euro extending its losses further on Friday, especially if export volumes fail to show a solid rebound on the month.
EUR/USD is currently unchanged on the day at a rate of $1.1354 on the inter-bank market.