GBP/EUR – Pound Struggles to Capitalise on Higher Inflation Rate
While the headline UK consumer price index picked up further than forecast in January this was not enough to significantly reduce the odds of a potential Bank of England (BoE) interest rate cut.
As the uptick to 1.8% was largely the result of higher fuel prices, suggesting that inflation is likely to fall back imminently, the Pound struggled to gain any particular ground on the back of the data.
GBP exchange rates found a stronger rallying point on Friday, however, as the UK manufacturing PMI unexpectedly avoided falling into contraction territory.
Even with the UK economy showing greater signs of resilience in the first quarter, though, increasing anxiety over the next phase of UK-EU trade discussions could easily weigh on GBP exchange rates in the days ahead.
GBP/USD – Limited UK Retail Sales Growth Mutes Pound Demand
As the CBI reported retail sales index only showed a modest uptick on the month in February this limited the potential for Pound gains.
With sales growth broadly flat for a second hopes of a potential retail rebound in the earlier months of 2020 diminished, with the December election result still failing to spur greater spending.
With February’s GfK consumer confidence index looking set to pick up from -9 to -8 GBP exchange rates may gain fresh traction on Friday.
As stronger levels of consumer spending and activity have helped to shore up UK growth in previous quarters any improvement here could help to ease fears of a potential first quarter slowdown.
On the other hand, if sentiment fails to move closer to positive territory the Pound may struggle to hold onto a positive footing.
USD/GBP – Shock Services PMI Contraction Fuels US Dollar Weakness
Demand for the US Dollar weakened sharply on the back of February’s services PMI, which markets caught off guard by the index slumping from 53.4 to 49.4.
This surprise contraction undermined confidence in the outlook of the world’s largest economy, leaving USD exchange rates on a softer footing.
Although market risk aversion picked up on the back of renewed anxiety over Covid-19 this was not enough to give the US Dollar any significant boost.
Further US Dollar losses could be in store this week if January’s durable goods orders weaken as forecast, with investors expecting to see a sharp -1.5% decline on the month.
Fresh evidence of a loss of momentum within the US economy could weigh heavily on USD exchange rates, even in the face of increased safe-haven demand.
EUR/USD – Unexpectedly Upbeat ECB Minutes Boost Euro
The European Central Bank’s (ECB) January meeting minutes proved more upbeat than anticipated, offering the Euro a leg up against its rivals last week.
However, the ultimate impact of the minutes was limited by the fact that they predated the escalation of the Covid-19 outbreak and so did not reflect its likely impact on Eurozone growth.
EUR exchange rates found fresh support on Friday, though, as Germany’s manufacturing PMI proved better than forecast.
As the index picked up from 45.3 to 47.8 in February this encouraged hopes that the sector’s decline is bottoming out, reducing the risk of a further deterioration in growth momentum.
Another strong reading from Friday’s German consumer price index data could encourage the single currency to push higher across the board.