GBP/EUR – UK Inflation Uptick Fails to Reverse Pound Downtrend
A surprise uptick in February’s UK consumer price index saw the Pound trending lower across the board, with this increase eroding some of the recent improvement in wage growth.
Markets see little chance of the inflation uptick encouraging the Bank of England (BoE) to raise interest rates in the near future, given the ongoing sense of Brexit uncertainty.
The mood towards the Pound soured further amid reports that Theresa May will only ask for a short extension to the Brexit deadline.
With the two sides still looking no closer to a mutually agreeable deal with little over a week left before the deadline GBP exchange rates were naturally left on a weaker footing.
Unless officials make a significant breakthrough on Brexit the Pound may struggle to return to a stronger footing in the days ahead.
GBP/USD – Pound Sees Limited Benefit as Unemployment Rate Hits 44-Year Low
While the UK unemployment rate unexpectedly fell to a fresh 44-year low of 3.9% on Tuesday the Pound struggled to capitalise on this improvement.
Even though the UK labour market continued to tighten this is unlikely to be enough to materially alter the BoE’s current policy outlook.
GBP exchange rates could still find a rallying point on the back of Thursday’s BoE policy announcement, however, if the central bank shows signs of confidence.
Evidence of policymaker optimism could help the Pound to recover some of its lost ground in the short term, even if uncertainty over Brexit persists.
Another solid month of UK retail sales growth may also encourage GBP exchange rates to trend higher across the board.
USD/GBP – Signs of Weakening US Economy Weigh on US Dollar
Disappointing US manufacturing and industrial production data drove the US Dollar down ahead of the weekend, even as consumer confidence showed signs of picking up.
As manufacturing output continued to contract in February this offered fresh evidence of slowing economic momentum in the US, leaving USD exchange rates on a weaker footing.
Weak factory orders growth also put pressure on the US Dollar, especially as progress towards a US-China trade agreement appeared to stall.
The mood towards the US Dollar could improve, however, if March’s Federal Open Market Committee (FOMC) policy meeting proves positive.
Any signs that policymakers are still on course to raise interest rates again before the end of the year could offer USD exchange rates a rallying point.
EUR/USD – Improved Eurozone Economic Sentiment Fails to Boost Euro
Although March’s ZEW economic sentiment surveys showed an improvement on the month this was not enough to shore up the Euro this week.
As Eurozone construction output slumped sharply on both the month and the year in January this provoked fresh worries over the economy’s underlying health.
A sharp narrowing of the Eurozone trade balance also put pressure on the single currency, with trading conditions looking set to remain weak for some months to come.
With the Eurozone economy showing fresh signs of slowing expectations for the latest European Central Bank (ECB) are not positive.
If the central bank maintains a dovish policy stance, expressing concern over the economic outlook, this could weigh heavily on EUR exchange rates.