GBP/EUR – Pound Falters as Inflation Holds Steady
As March’s UK consumer price index data fell short of forecast, holding steady at 1.9% on the year rather than rising, the mood towards the Pound soured.
With inflation still trending below the Bank of England’s (BoE) 2% target the case for any return to a monetary tightening bias remains limited, keeping GBP exchange rates on the back foot.
As persistent uncertainty surrounding Brexit limits the BoE’s ability to alter monetary policy this means interest rates look set to remain on hold for the foreseeable future.
As long as MPs fail to make any significant signs of progress towards a Brexit agreement in the near future GBP exchange rates could struggle to find much traction.
GBP/USD – Stronger Wage Growth Supports Pound
Tuesday’s uptick in average weekly earnings offered a boost to the Pound, with wage growth continuing to outpace inflation in the three months to February.
This improvement eases some of the pressure on household finances, even though wages remain some way short of their pre-financial crisis levels.
The Pound could find an additional rallying point on the back of March’s UK retail sales data on Thursday, with forecasts pointing towards another solid month of growth.
If consumer spending continues to increase this would bode well for the economic outlook, as higher sales could help to bolster growth at the end of the first quarter.
USD/GBP – Signs of Weakening Economic Momentum Weigh on US Dollar
Another month of underwhelming US industrial and manufacturing production put the US Dollar under pressure this week, suggesting that the economy is losing further momentum.
With the manufacturing sector showing signs of slowing in the face of ongoing trade tensions USD exchange rates were exposed to a fresh bout of selling pressure.
Friday’s surprise decline in the University of Michigan consumer sentiment index also weighed on demand for the US Dollar, especially as market risk appetite generally picked up.
Even so, as forecasts point towards a solid rebound in advance retail sales in March this looks set to give USD exchange rates a boost on Thursday.
EUR/USD – Improved Eurozone Economic Sentiment Buoys Euro
EUR exchange rates found some confidence as April’s ZEW economic sentiment surveys showed a solid improvement on the month.
With economic sentiment returning to positive territory the appeal of the Euro naturally improved, even though anxiety over the strength of the economic outlook remains.
As the Eurozone trade surplus widened significantly from 1.8 billion to 17.9 billion in February this offered additional encouragement to the single currency, signalling a more limited impact from rising trade tensions.
Even so, EUR exchange rates look vulnerable ahead of April’s raft of Eurozone manufacturing and services PMIs.
Unless growth momentum shows signs of picking up across the currency union the EUR/USD exchange rate could soon return to the back foot.