GBP: Pound Sterling Steady despite IMF Downgrade
The Pound began the week with gusto, climbing against the majors despite the International Monetary Fund’s (IMF) UK growth downgrade.
The IMF claimed that Brexit was likely to have a ‘mild negative’ effect on the economy of the UK, notably cutting the GDP forecast for 2017 from 2.0% to 1.7%.
The Pound initially shrugged off this assessment, consolidating its position into the afternoon as UK US trade talks began.
The data calendar for the UK is somewhat sparse today, with traders primarily awaiting tomorrow’s significant UK GDP figures.
Year-on-year UK GDP growth is expected to have eased from 2% year-on-year to 1.9%. Should this occur then Sterling will likely come under some pressure.
GBP/EUR: Pound Euro Exchange Rate Rises from 8-Month Low
Yesterday the Pound to Euro exchange rate rallied some 50 pips after the Eurozone published a spate of disappointing PMIs.
Eurozone manufacturing, services and composite PMIs all came in lower than anticipated, with the composite figure coming in at 55.8 – below the forecast of 56.2.
Despite still being relatively robust, the fact that these figures missed their targets suggests to some that Eurozone economic output may be slowing– something that could reduce the chance of the European Central Bank (ECB) beginning to bring an end to its stimulus programme.
GBP/USD: Pound US Dollar Rallies as IMF Downgrades US Growth Forecast
The Pound to US Dollar exchange rate jumped almost a third of a cent yesterday as the ‘Greenback’ was wracked by its own negative IMF report.
The IMF cut its 2017 US growth forecast from 2.3% to 2.1% and the 2018 forecast from 2.5% to 2.1% – the biggest downward revision amongst all of the major economies.
The IMF stated:
‘The major factor behind the growth revision, especially for 2018, is the assumption that fiscal policy will be less expansionary than previously assumed, given the uncertainty about the timing and nature of US fiscal policy changes […] Market expectations of fiscal stimulus have also receded’.
Another reason cited was essentially that the IMF’s shift in views reflected the stalling of the Republican Party’s economic agenda, particularly in regard to tax reform.
The Pound capitalised on this drop, cementing gains into the afternoon and trading within a fairly narrow band against the ‘Greenback’ this morning. The short-term forecast for the pairing will be determined by this week’s heavy hitting data; notably US consumer confidence today and the Federal Reserve’s rate decision and UK GDP tomorrow.
The US consumer confidence index is expected to slip from 118.9 to 116. If this materialises then the Pound to US Dollar exchange rate may gain before the day is over.
GBP/CAD: Pound to Canadian Dollar Remains within Narrow Band
The Pound traded within a relatively narrow band against the Canadian Dollar yesterday as oil prices edged higher and further BOC rate hikes within the year seemed likely, bolstering the ‘Loonie’.
This week is a sparse week for Canadian data, however Friday will see the release of the nation’s GDP figures.
The IMF has forecast Canadian GDP at 2.5% this year (up from April’s 1.9% forecast) in its latest World Economic Outlook report.
However, Friday’s month-on-month growth figure for May is expected to have remained stable at 0.2%.
GBP/AUD: Pound Australian Dollar Fluctuates as Iron Ore Edges Higher
The Pound to Australian Dollar exchange rate fluctuated on Monday as iron ore spot markets shifted higher and the IMF downgraded UK GDP growth predictions for 2017.
Iron ore’s modest recovery was predominantly due to a rebound in Chinese commodity futures caused by a combination of strong production margins and higher steel prices – a trend of late that has elevated iron ore despite ballooning inventory levels.
The big data this week for the GBP/AUD pairing will be tomorrow’s UK GDP and Australian inflation figures. Currently Australian year-on-year inflation is forecast to have risen 2.2% in Q2, up from 2.1% in Q1. Quarterly, however, the consensus is for growth in consumer price pressures of 0.4%, down from a previous figure of 0.5%.
Governor Lowe of the Reserve Bank of Australia (RBA) is also due to speak tomorrow, and should his comments be hawkish or contain a more upbeat view then the GBP AUD pairing may come under pressure.
GBP/NZD: Pound to New Zealand Dollar Rebounds
Sterling rebounded from its previous 3-week low against the ‘Kiwi’ Dollar yesterday as traders mulled over the possibility that the Reserve Bank of New Zealand may have to consider cutting interest rates to reduce the strength of the New Zealand Dollar.
The forecast for GBP/NZD remains predominantly determined by tomorrow’s UK GDP data, although you should also keep an eye out for tonight’s New Zealand trade balance figures. The trade numbers are forecast to show an increase in the nation’s trade surplus. If the improvement occurs then the Pound New Zealand Dollar exchange rate will come under pressure before tomorrow’s UK GDP release.
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