Exchange Rates Weekly Update: Positive UK GDP Growth Limits Pound’s Brexit Weakness

GBP/EUR – Pound Benefits as UK GDP Betters Forecast

Demand for the Pound improved on the back of February’s unexpectedly positive UK gross domestic product data, even in the face of ongoing Brexit anxiety.

Rather than stagnating as forecast the UK economy saw modest growth of 0.2% on the month, suggesting a more limited negative impact of Brexit uncertainty.

This helped GBP exchange rates to recover some of their lost ground on Wednesday morning, in spite of the continued lack of clarity over the UK’s future relationship with the EU.

Unless the two sides agree a fresh extension to the Brexit deadline this could leave the Pound exposed to further weakness this week, however.

GBP/USD – Resilient Manufacturing Sector Supports Pound

UK manufacturing and industrial production figures also surprised to the upside in February, in part driven by elevated levels of business stockpiling.

As production avoided a fresh contraction this offered additional support to GBP exchange rates, although worries over the outlook of the manufacturing sector remain.

Once stockpiling momentum fades the sector could face a sharp downturn, putting additional pressure on the UK’s economic growth.

Another contraction in the RICS house price balance for March could prompt renewed Pound Sterling weakness, with forecasts pointing towards a continued deterioration in the housing market.

USD/GBP – Weaker Wage Growth Limits US Dollar Appeal

A surprise easing in US hourly earnings saw the US Dollar falter ahead of the weekend, with weaker wage growth giving the Federal Reserve fresh incentive to leave interest rates on hold.

Although the headline non-farm payrolls figure showed a solid improvement on the month, adding 196,000 new jobs to the US economy, this was not enough to prevent USD exchange rates slipping.

Confidence in the outlook of the world’s largest economy diminished further on the back of underwhelming factory orders and small business optimism index readings.

Even so, if the US consumer price index picks up this could encourage the US Dollar to return to a stronger footing against its rivals.

Fresh signs of caution in the latest set of Federal Open Market Committee (FOMC) meeting minutes may leave USD exchange rates exposed to further selling pressure, however.

EUR/USD – Euro under Pressure Ahead of ECB Announcement

Better-than-expected German industrial production data helped the Euro to recover some of its lost ground last week, in spite of lingering worries over the health of the Eurozone’s powerhouse economy.

As German exports saw a sharp -1.3% contraction on the month in February, however, the positive impact of the data proved short-lived.

Demand for the single currency remained limited ahead of the European Central Bank’s (ECB) April policy announcement, even though no change is anticipated at this stage.

If ECB policymakers maintain a dovish outlook this could prompt a fresh decline in EUR exchange rates, with any move towards further monetary loosening set to weigh heavily on the appeal of the Euro.

Louisa Heath

Contact Louisa Heath