The Pound to Euro exchange rate (GBP/EUR) rose to a fresh 9-week high of 1.2204 yesterday as investors reacted to a disappointing print out of the Eurozone’s largest economy. German Factory Orders were reported to have contracted by -2.8% during March, missing expectations of a 0.3% increase.
Sterling remained well-supported following Tuesday’s robust UK Service Sector report, which showed that tertiary output accelerated from 57.6 to 58.7 last month. The potent PMI numbers were especially positive for the Pound because Britain’s dominant service sector accounts for over 70% of total economic output. The stronger-than-expected score reflected optimistically on both job creation and domestic demand.
The Pound to US Dollar exchange rate (GBP/USD) rallied to a fresh 4.5-year high of 1.6996 on Tuesday in reaction to the PMI report. However, Sterling was unable to breach long-running resistance at 1.7000 and GBP/USD receded by around half a cent during yesterday’s session.
The only key event on the North American calendar yesterday saw Federal Reserve Chairwoman Janet Yellen give a testimony to Congress. Yellen said that the US economy still required a significant level of accommodative stimulus in order to drive labour market performance higher. She appeared cautious with regards to stoking interest rate hike bets and opted to flag the many problems that are still present within the world’s largest economy rather than focus on the recent improvements in labour market data.
Markets were happy to let the Fed President talk down the US economy because she was mainly regurgitating things already said at previous meetings. GBP/USD remained fairly flat following the statement.
Later this morning the Bank of England is set to maintain its longstanding benchmark interest rate of 0.50% and refrain from announcing any additional asset purchases. The rate decision is likely to be a bit of a non-event and it is highly unlikely that traders will push Sterling up or down unless Governor Mark Carney chooses to release a policy statement, something he rarely does.
The European Central Bank’s announcement is of far more interest to traders, even though the majority of investors are fairly confident that the ECB will look to remain on the sidelines during May.
Eurozone CPI inflation inched up slightly from 0.5% to 0.7% in April and this is likely to be prove enough to prevent ECB Chief Mario Draghi unleashing any fresh stimulus.
Subsequently, investors will be scouring Draghi’s press conference for signs as to the Bank’s intentions for monetary policy going forward. Any serious hints that either a rate cut, a negative deposit rate or a bond-buying programme are imminent could send GBP/EUR back above 1.2200, and possibly towards a 15-month high of 1.2257.
Pound to Euro & USD update – 09/05/14
The Pound was holding ground at its highest level in two months against the Euro as concerns over the situation in Ukraine weighed upon the single currency.
Investors are growing increasingly nervous ahead of Sunday’s referendum on independence in Donetsk. Fears are building that if the vote goes ahead then
Ukraine will slide into a full blown civil war between the Western backed Kiev government and pro-Russian separatists.
A fall in German trade data and warnings that an escalation in the crisis by the European Commission President will harm the Eurozone economy also weighed heavily upon the Euro.
Sterling eased against a number of major peers as economists said that the currency’s recent strong gains may have been underdone. Investors also embarked on a bout of profit taking.
The US Dollar meanwhile strengthened against the Euro and Pound as demand for the safe haven currency increased due to the worries over Ukraine
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