GBP/EUR – Brexit Jitters Continue to Limit Pound Strength
As the government announced that Theresa May’s withdrawal agreement will face a fourth ‘meaningful vote’ at the start of June the mood towards the Pound has picked up today.
However, with many MPs still opposed to the bill it remains to be seen whether any tangible progress towards a final Brexit deal will materialise.
Tuesday’s underwhelming UK average weekly earnings data also limited the upside potential of GBP exchange rates as growth eased from 3.5% to 3.2%, suggesting that households are coming under greater pressure.
As long as a sense of political uncertainty continues to cloud the economic outlook the Pound may struggle to find any particular degree of strength against its rivals.
GBP/USD – Falling Unemployment Fails to Shore up Pound
While the UK unemployment rate fell to a fresh 44-year low of 3.8% in the three months to March this was not enough to give GBP exchange rates any significant boost.
Even with the labour market showing fresh signs of tightening markets see limited cause for confidence in the UK economy.
With the Bank of England (BoE) looking set to sit on its hands for the foreseeable future the potential for GBP exchange rate gains remains limited.
Even so, an uptick in next week’s UK consumer price index data could see the Pound pushing higher across the board.
As forecasts point towards the headline inflation rate strengthening to 2%, matching the BoE’s target, this may give Pound Sterling a solid boost.
USD/GBP – Elevated US-China Trade Tensions Boost US Dollar
A fresh souring in trade relations between the US and China helped to bolster USD exchange rates this week, with safe-haven demand sharply increasing.
As the two sides announced the imminent imposition of additional tariffs the general sense of market risk appetite diminished, to the benefit of the US Dollar.
Although trade tensions could weigh on US growth in the months ahead this was not enough to sour the mood towards the US Dollar, even as the Federal Reserve comes under increasing pressure to cut interest rates.
Signs of weakness in the Philadelphia Fed business outlook index could weigh heavily on USD exchange rates, however, as markets remain sensitive to any indications that the world’s largest economy is losing its momentum.
EUR/USD – Euro Downside Limited as German Economy Avoids Contraction
Relief greeted news that the German economy had returned to a positive state of growth in the first quarter, clocking in at 0.4% after the previous quarter’s stagnation.
This encouraged a greater sense of optimism in the outlook of the Eurozone’s powerhouse economy, easing concerns that a recession could be on the cards.
Nevertheless, the Euro struggled to capitalise on the data thanks to lingering concerns over the deteriorating nature of the global trade climate.
Comments from European Central Bank (ECB) policymakers could add to the softness of EUR exchange rates ahead of the weekend if they continue to signal caution over the economic outlook.
Confirmation that the Eurozone consumer price index picked up on the year in April may still offer the Euro some support on Friday, even so.