Pound Exchange Rates Weekly Roundup: GBP Holds Ground on Easing Public Sector Deficit

GBP/EUR – UK Budget Deficit Hits 17-Year Low

The Pound benefitted from news that the UK budget deficit had fallen to a 17-year low in March, even though still fell short of the Office of Budget Responsibility forecast.

This improvement in the UK’s public finances still gave GBP exchange rates a leg up this morning, suggesting that the economy is not in quite such a vulnerable position.

Further gains could be in store for the Pound on the back of April’s CBI business optimism and industrial trends orders surveys, meanwhile.

Evidence that the economy largely shrugged off the uncertainty surrounding Brexit this month, in spite of a lack of progress among politicians, would offer GBP exchange rates a solid rallying point.

GBP/USD – Retail Sales Surge Offers Pound Support

A stronger-than-expected surge in UK retail sales in March offered a solid boost to GBP exchange rates last week, encouraging confidence in the economic outlook.

As sales rose 6.2% on the year, indicating that consumers continued to shrug off worries over Brexit, this gave investors fresh incentive to pile into the Pound.

Even so, as much of this annual increase could be attributed to the weaker nature of 2018’s March figures the positive impact of the data soon started to fade.

If Friday’s CBI reported retail sales index for April shows an improvement on the month, with forecasts pointing towards the index strengthening from -18 to 0, demand for the Pound could picked up once again.

USD/GBP – Rising Home Sales Overshadow Underwhelming Manufacturing Sector

Another strong month of new home sales helped to shore up the US Dollar this week, even as the US manufacturing sector continued to show signs of slowing.

Although the Richmond Fed manufacturing index disappointed forecasts, slumping from 10 to 3, this was not enough to drag USD exchange rates lower on Tuesday.

Instead the US Dollar benefitted from a general deterioration in market risk appetite as the Trump administration escalated trade tensions with the EU and Iran.

A solid rebound in March’s durable goods orders figure could offer an additional boost to USD exchange rates, with resilient consumer spending likely to foster greater optimism in the domestic outlook.

EUR/USD – Weak German Business Sentiment Weighs on Euro

As the latest European Central Bank (ECB) Economic Bulletin noted that a new round of US tariffs would only cause a ‘modest decrease’ in Eurozone economic growth this offered a boost to the Euro.

However, demand for the single currency remained generally muted thanks to the underwhelming nature of April’s German IFO business sentiment survey.

With sentiment among German businesses continuing to deteriorate markets saw little cause for confidence in the economic outlook, particularly after April’s disappointing manufacturing and services PMIs.

If ECB policymakers maintain a cautious outlook on monetary policy in the days ahead, indicating that any tightening action is a long way off, this could see EUR exchange rates extending their losses further.

Louisa Heath

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