GBP/EUR – Brexit Tensions Dent Pound Euro Exchange Rate Ahead of BoE Meeting
Support for the Pound weakened against the Euro in response to news that the EU had opted to launch legal action against the UK over the Northern Ireland border issue.
With the UK already facing significant trade disruption at its ports, this move put pressure on the GBP/EUR exchange rate as worries over the economic outlook picked up once again.
Further volatility looks likely for the Pound on the back of March’s Bank of England (BoE) policy announcement, with investors looking for fresh guidance from policymakers.
Although no monetary policy changes look likely at this stage, any expressions of concern over the relative health of the UK economy could see the Pound falling out of favour with investors.
GBP/USD – Pound Weighed Down by Negative January GDP
Ahead of the weekend, the Pound came under greater pressure thanks to January’s underwhelming UK GDP data.
Confirmation that the economy experienced a contraction on the month at the start of 2021, although better than expected at -2.9%, left investors with little reason to favour the Pound over its rivals.
The latest decline in both the industrial and manufacturing production figures also weighed heavily on GBP exchange rates, especially as tensions over Brexit appeared on the rise once again.
Further developments in the UK’s vaccination rollout will likely continue driving GBP movement, as the UK government looks to calm concerns over the use of the AstraZeneca vaccine being suspended in several European countries.
USD/GBP – Rising Consumer Sentiment Helps Lift US Dollar
A stronger-than-expected uptick in the Michigan consumer sentiment index helped to lift the US Dollar against its rivals last week.
Evidence that consumers took a less negative view at the start of the month, combined with ongoing optimism over US stimulus, encouraged hopes that the world’s largest economy has started to shake off some of the impact of the Covid-19 crisis.
However, fresh signs of dovishness from the Federal Reserve at its March policy announcement could see USD exchange rates stumble.
As long as policymakers express a degree of anxiety over the economic outlook and demonstrate a willingness to keep interest rates lower for the foreseeable future, demand for the US Dollar looks set to weaken.
EUR/USD – Jump in German Economic Sentiment Boosts Euro
The European Central Bank’s (ECB) policy meeting and guidance failed to put any significant dampener on the Euro.
Instead, the single currency received a solid boost on Tuesday as the Germany ZEW economic sentiment index jumped from 71.2 to 76.6 for March.
Signs of resilience within the Eurozone’s powerhouse economy gave EUR exchange rates room to push higher across the board, even as Covid-19 concerns continue to hang over the bloc.
A narrowing of January’s Eurozone trade surplus could put some pressure on the Euro, though, as a slowdown in trade may put increasing strain on economic growth in the first quarter.