Weekly Update: US Dollar Slumps Following Fed Interest Rate Decision

GBP/EUR – Pound Fluctuates Despite Retail Sector Optimism

The Pound traded in a wide range this week despite optimism over signs of recovery in the UK retail sector.

Even though April’s CBI distributive trades index picked up more sharply than anticipated, jumping from -45 to 20, GBP exchange rates struggled to capitalise on the data.

The Pound looks retain some support into next week as the UK appears on course to continue easing lockdown conditions.

With the UK government ordering 60 million more Pfizer vaccine doses and people in their early 40s starting to receive their first jab, economic recovery optimism will likely remain and support GBP.

GBP/USD – Pound Gains Limited by UK Political Uncertainty

Although both April’s flash UK manufacturing and services PMIs bettered forecasts, the appeal of the Pound remained muted ahead of last weekend.

As markets have already priced in the odds of a stronger second quarter growth rate into GBP exchange rates, this limited the impact of the PMIs, in spite of their strength.

Meanwhile, the GBP/USD exchange rate began to make gains in midweek trade despite growing uncertainty in UK politics, with local and Scottish parliament elections next week.

With the potential for a Scottish National Party (SNP) majority and renewed calls for an independence referendum, as well as a formal investigation into how Boris Johnson funded a flat refurbishment, the Pound could come under pressure.

USD/GBP – US Dollar Falls Following Dovish Fed

A weaker-than-expected rebound in March’s durable goods orders figure put a dampener on the US Dollar at the start of the week, although souring market sentiment stemmed USD losses through safe-haven demand.

The US Dollar then plummeted after the Federal Reserve’s latest interest rate decision as the Fed maintained its dovish tone and indicated interest rates would not change for some time.

US GDP figures for March helped the US Dollar recover some losses as the first quarter reading indicated better-than-expected growth of 6.4%, another strong reading after the fourth quarter 2020 figure of 4.3%

Looking ahead, USD could recover some of its losses as personal income and spending data is expected to have jumped in March, and forecast for April’s ISM manufacturing PMI is a slight uptick to record highs.

EUR/USD – Euro Recovers after German Confidence Indexes Disappoint

Demand for the euro weakened as the latest German business and consumer confidence indexes both fell short of forecast this week.

Signs of weakening sentiment within the Eurozone’s powerhouse economy left the single currency on a weaker footing.

However, the Euro recovered due to weakness in the US Dollar and looks set to benefit from German inflation rising above forecast at 2% in April, up from March’s 1.7% reading.

The single currency’s recovery could be short-lived following Eurozone GDP figures released tomorrow which are expected to show a -0.8% first quarter contraction on the previous quarter.