Pound Fails to Extend Gains against Euro and US Dollar despite Rising UK Inflation

GBP/EUR – Higher UK Inflation Offers Limited Support to Pound

An uptick in March’s UK inflation rate to 0.7%, slightly below the 0.8% forecast, only offered limited support to the Pound today, with investors still seeing cause for caution over the economic outlook.

Although the UK retail sector has seen a sharp increase in foot traffic since national lockdown conditions eased last week, GBP exchange rates have been unable to sustain recent gains.

With the Bank of England (BoE) looking set to maintain a dovish policy bias for some time to come, particularly with the imminent departure of chief economist and key hawk Andy Haldane, the appeal of the Pound proved limited.

Even so, if March’s set of UK retail sales data released on Friday points towards growing strength within the sector, this could help to lift the Pound against its rivals ahead of the weekend.

GBP/USD – Pound Fails to Capitalise on Lower UK Unemployment Rate

The Pound struggled to build on Monday’s economic optimism-driven gains despite the UK unemployment rate unexpectedly dipping from 5% to 4.9% in February.

As the accompanying average earnings data fell short of forecast, suggesting that wage growth is slowing, this cast some doubt over the relative strength of the labour market.

However, April’s services and manufacturing PMIs published on Friday could support the GBP/USD exchange rate as they are expected to show business activity increased again this month.

As long as the economy looks set to start the second quarter on a stronger footing, the downside potential of the Pound is likely to prove more limited.

USD/GBP – US Dollar Undermined by Upbeat Market Mood

The US Dollar has trended lower over the past week as a prevailing risk-on market mood eroded safe-haven demand for USD.

US retail sales published at the end of last week, which showed a 9.8% surge in March, had given USD exchange rates a boost before slumping this week as US Treasury yields dropped and a more upbeat mood weighed on the US Dollar.

Shifting market risk appetite could continue driving movement in the US Dollar in the days ahead as investors continue assessing the risks to the global growth outlook.

At the same time, last week’s initial jobless claims could pressure USD exchange rates if they meet forecasts and rise to 617,000 after the previous week’s data showed a drop to 576,000.

EUR/USD – Euro Boosted as German Producer Prices Rise

Rising German producer price index figures encouraged the Euro to hold onto a generally positive footing, even as doubts over the prospect of any European Central Bank (ECB) action lingered.

With inflationary pressure showing signs of picking up within the Eurozone’s powerhouse economy, in spite of ongoing Covid-19 disruption, the single currency benefitted.

However, EUR exchange rates could well face selling pressure in the wake of Thursday’s ECB policy announcement.

Fresh signs of dovishness within the central bank may leave the Euro vulnerable to selling pressure, even though investors have no expectations for any imminent policy action.