GBP/EUR – Underwhelming PMIs Point towards Second Quarter Softness
The UK economy showed fresh signs of weakness as May’s raft of PMIs highlighted a loss of momentum in both the manufacturing and construction sectors, which fell into contraction territory.
However, the negative impact of the data was somewhat limited by a better-than-expected services PMI, given that the majority of UK economic activity remains driven by the sector.
Even so, the economic outlook still appears muted in the second quarter as the impact of earlier Brexit stockpiling fades and business confidence weakens in the face of prolonged uncertainty.
Comments from Bank of England (BoE) Governor Mark Carney may increase the pressure on GBP exchange rates on Thursday, with the central bank looking set to maintain a cautious outlook for longer.
GBP/USD – Pound under Pressure from Faltering Car Industry
Another sharp decline in UK car production and sales added to anxiety over the outlook of the economy, pointing towards a wider sense of Brexit-based uncertainty.
With the question of Theresa May’s successor still up in the air markets, businesses and consumers lack any real cause for confidence in the Pound.
Demand for the Pound could falter further ahead of the weekend if the latest BoE/TNS inflation attitudes survey adds to the underwhelming economic picture.
More evidence of a souring in domestic confidence and signs of higher inflationary pressure may leave GBP exchange rates on the back foot once again.
USD/GBP – Rising Odds of Fed Rate Cut Weigh on US Dollar
A steady showing from April’s personal consumption expenditure core index was not enough to prevent an increase in the odds of a Federal Reserve interest rate cut.
As the Trump administration showed no signs of backing down on its proposed Mexican import tariff investors see an increasing risk of the US economy losing momentum in the months ahead.
Fresh signs of weakness within the US manufacturing sector added to the bearish mood, leaving USD exchange rates on a generally softer footing this week.
Friday’s non-farm payrolls report could also put pressure on the US Dollar if the labour market fails to show a further tightening on the month.
Any easing in wage growth would offer the Fed additional incentive to consider cutting interest rates before the end of the year.
EUR/USD – Weakening Eurozone Inflation adds to Bearish Euro Outlook
Markets continued to speculate over the prospect of the European Central Bank (ECB) taking a more dovish stance after the Eurozone consumer price index eased further than forecast in May.
As the headline annual inflation rate fell back from 1.7% to 1.2% this raised fresh concerns that the ECB’s existing monetary policy measures have failed to sufficient stimulate the Eurozone economy.
With global growth worries mounting further in response to the Trump administration’s pugnacious approach to trade the German economy looks vulnerable to a further deterioration in exports.
While the ECB is expected to leave interest rates on hold this week markets remains sensitive to any shift in the accompanying commentary.
A more dovish message from the central bank could see the Euro trending sharply lower across the board.