Weekly Update: Pound Extends Gains on UK GDP Rebound

GBP/EUR – Pound Extends Rally on Rising Monthly GDP

As March’s monthly UK GDP reading bettered forecasts, clocking in at 2.1% rather than the forecast 1.3%, the Pound climbed over 1% against the Euro.

Even though growth contracted in the first quarter, GBP investors instead focused on the prospect of a second quarter rebound.

With the UK economy set to open up further next week as national lockdown conditions ease, the mood towards the Pound may continue to improve.

However, in the absence of any fresh economic data releases ahead of the weekend, the potential for a stronger GBP rally could prove limited.

GBP/USD – Pound Surges on Increased Political Stability

The Pound US Dollar exchange rate surged at the start of this week after concerns over UK political instability eased.

Following the Scottish election and the Scottish National Party (SNP) missing an outright majority by one seat, the lower chances of another independence referendum sparked a relief rally that boosted the Pound.

These gains came after the Bank of England’s (BoE) latest rate decision disappointed GBP investors by failing to go further with tapering its weekly bond buying programme.

Ahead of UK employment data next week, fresh commentary from BoE Governor Andrew Bailey could drive GBP movement if he reiterates a dovish tone.

USD/GBP – Major Payrolls Disappointment Fuels US Dollar Selling

Support for the US Dollar weakened dramatically on Friday as April’s non-farm payrolls report fell significantly short of forecast.

While the headline figure was expected to deliver a 978,000 increase in payrolls on the month, it instead came in at just 266,000, undermining confidence in the health of the labour market.

However, USD exchange rates have recovered some ground today after a surprise 4.2% jump in inflation caused US bond yields to soar, in turn boosting the US Dollar.

Looking ahead, as April’s retail sales data looks set to show something of a slowdown in the wake of March’s major surge, USD exchange rates may struggle to strengthen on the data.

EUR/USD – Upbeat German Data Bolsters Euro

As the German trade surplus unexpectedly expanded in March, the Euro to held a positive footing against its rivals.

A solid uptick to a 21-year high in the German ZEW economic sentiment index added to strength of the single currency as it indicated that the Eurozone’s powerhouse economy looks on track for a strong recovery in the second quarter.

However, the mood towards the Euro could sour with the release of the European Central Bank’s (ECB) most recent set of meeting minutes.

If policymakers maintain a cautious view of the economic outlook, this could put fresh pressure on EUR exchange rates ahead of next week’s second EU GDP estimate, even though the odds of any fresh loosening action appear limited.

Louisa Heath

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