GBP/EUR – Bank of England Meeting Fails to Encourage Pound Rally
It came as little surprise to investors as the Bank of England (BoE) opted to leave interest rates on hold at its May policy meeting, limiting support for the Pound.
Although the central bank did raise its growth forecasts for the coming year, this was not enough to give the GBP/EUR exchange rate any boost.
Even with policymakers expecting to see growth return to its pre-Covid-19 levels in the fourth quarter, the chances of any interest rate hike remains muted.
However, as the economy continues to reopen in the wake of easing national lockdown conditions, a sense of optimism could still help to limit the downside potential of the Pound ahead of next week’s UK first quarter GDP data.
GBP/USD – Pound Gains Limited by Political Uncertainty
The Pound made solid gains against the US Dollar at the start of this week on economic optimism over the UK’s recovery.
Confirmation that the UK manufacturing PMI indicated the sector’s fastest pace of expansion in 25 years added to this optimism.
However, political uncertainty continued to pressure GBP exchange rates through the week as Boris Johnson’s finances remained under scrutiny and investors were cautious before the local and Scottish elections on Thursday.
The result of the Scottish election could pressure Sterling in the near term, with a majority win for the Scottish National Party (SNP) potentially driving renewed momentum for an independence referendum.
USD/GBP – US Dollar Struggles after Short-Lived GDP Boost
The US Dollar recovered from Federal Reserve driven losses heading into the weekend as the first quarter GDP reading bettered expectations at 6.4% and US personal income and spending data jumped.
However, shifting market risk appetite and comments (that were later retracted) from US Treasury Secretary Janet Yellen, which suggested interest rates need to rise, caused the US Dollar to fluctuate.
USD exchange rates could find support on the back of April’s non-farm payrolls report, with markets expecting to see another solid increase in employment on the month.
Unless the figure falls significantly short of forecast, the US Dollar looks set to push higher heading into the weekend, capitalising on the recovering health of the domestic labour market.
EUR/USD – Surge in German Factory Orders Limits Euro Downside
As German factory orders surged 3% on the month in March, this helped to shore up the Euro this week, with the Eurozone’s powerhouse economy showing greater signs of resilience.
The mood towards the single currency had proved muted in the wake of the Eurozone’s first quarter gross domestic product report, which showed that the currency union had fallen into a state of technical recession.
Even so, the single currency could face fresh selling pressure ahead of the weekend if March’s German trade data fails to impress.
A narrowing of the headline trade surplus may leave the Euro on the back foot against its rivals, as weaker trade conditions could keep the German economy under pressure heading into the second quarter.