GBP/EUR – UK GDP Decline Puts Limited Pressure on Pound
As the first quarter UK GDP showed a smaller contraction than forecast, the mood towards the Pound improved.
While growth still slumped by a dismal 2.0% in the first three months of 2020, investors had anticipated a deeper decline of -2.5% on the quarter.
In the wake of the government’s decision to begin easing lockdown conditions GBP exchange rates were able to recover some of their lost ground, despite the expectation of a weak second quarter.
Even so, any signs of a second wave of Covid-19 infections could force a return to tighter lockdown restrictions which may limit potential gains for the Pound in the days ahead.
GBP/USD – Bank of England Fails to Shore up Pound Demand
The Bank of England (BoE) offered investors little cause for confidence on Thursday, forecasting a deep economic recession in 2020.
With two policymakers already pushing for an expansion of the quantitative easing programme, the possibility of future dovish policy action also dented the Pound’s appeal.
However, the BoE anticipates a v-shaped recovery, with the UK economy returning to a solid state of growth in 2021, but this failed to significantly impact GBP/USD exchange rates.
With no major UK data set for release in the remainder of the week, support for the Pound could easily weaken as speculation over the fallout of the Covid-19 crisis persists.
USD/GBP – US Dollar Falters as US Unemployment Rate Surges
While April’s US unemployment rate showed a smaller surge than initially feared, it failed to offer the US Dollar any encouragement.
With the unemployment rate now standing at 14.7%, worries over the resilience of the world’s largest economy picked up.
As the Federal Reserve also faces calls to cut interest rates into negative territory, USD exchange rates struggled to hold onto a positive footing.
If Friday’s set of industrial and manufacturing production figures weaken as forecast it could leave the US Dollar vulnerable to further selling pressure as investors assess the damage caused by the pandemic.
EUR/USD – Collapse in German Exports Drives Euro Lower
March’s German trade data proved underwhelming, showing a -11.8% crash in export volumes on the month.
Confirmation the Eurozone’s powerhouse economy saw a major trade slowdown at the end of the first quarter fuelled worries over the prospect of any imminent recovery in activity.
Further volatility looks likely for the Euro on Friday with the release of the first quarter German GDP report.
A sharp contraction in the quarterly growth rate could easily drive the single currency lower across the board, with a weak showing here likely to drag on the overall performance of the Eurozone.
Meanwhile, any increased signs of dovishness in the latest European Central Bank (ECB) economic bulletin may add to the bearish outlook.