- Pound Slips after Poor Data Week – Underwhelming PMIs dent GBP
- ‘Brexit’ Concerns Rear Their Head – New warnings & concerns of influence on Eurozone
- US Dollar Rally Weakens on Poor Data – Hawkish Fed Policymaker keeps it sturdy
- Forecast: UK Trade Deficit Tomorrow – US Labour market conditions index today
The Pound Sterling to US Dollar (GBP/USD) exchange rate appears to show signs of recovering this week after losing around -180 pips during last week’s session. GBP/USD is attempting its recovery on the back of poor US data.
While GBP/USD dipped to a low of 1.4379 on Monday morning, the Pound is attempting to remain sturdy and has edged up 0.3% to trend in the region of 1.4465.
‘Brexit’ Concerns Return on Poor UK PMIs and Economic Warnings
The Pound (GBP) suffered from a series of worse-than-expected PMI reports last week, culminating in Thursday’s surprisingly low Composite PMI score, released on Thursday. April’s Composite PMI only reached 51.9, a worse result than the estimated drop from 53.6 to 53.2.
With many analysts predicting that the poor PMI scores were a result of ‘Brexit’ concerns taking hold of business confidence, last week’s session saw fears that the UK could leave the EU in June retaking the spotlight in the foreign exchange market.
Many economists have suggested that April’s poor PMI scores could lead to poor Q2 Gross Domestic Product (GDP), as growth was a mere 0.1% in April from Q1’s 0.4%.
‘Brexit’ rows have affected some Eurozone nations too, as surveys in countries such as Italy and France have suggested those nations may now be interested in their own referendum vote. Bloomberg reports;
‘Half of Europeans believe that a vote by Britain to leave the European Union could spark a domino effect causing other countries to leave the bloc, with four in 10 foreseeing a reduced EU by the end of the decade.
An average of half of respondents in Belgium, France, Germany, Hungary, Italy, Poland, Spain and Sweden believe their own country should hold a referendum on staying in the EU, and an average of 49 percent think Britain will vote to leave in June’s referendum, a poll by Ipsos Mori published Monday showed.’
Reports also suggest that the Bank of England (BoE) may be readying options to put an interest rate cut in place if Britain leaves the EU next month, which weighed on the ‘Brexit’-weary Pound.
Despite this, polls continue to suggest that the UK leaving the EU is unlikely, which remains a source of strength for Sterling.
Mixed US Data Makes US Dollar (USD) Advances Difficult
The US Dollar was prevented from making more significant gains against Sterling due to a slew of worse-than-expected reports last week weighing on analysts’ expectations for two Federal Reserve rate hikes this year.
While the amount of continuing jobless claims were actually lower than expected, the key unemployment rate revealed on Friday came in at 5% for April. This disappointed expectations that it would drop to 4.9% and was made worse by a lower-than-expected Change in Non-Farm Payrolls figure.
The US economy was shown to have added 160,000 positions in April, disappointing projections that March’s figure of 215k would be nearly matched by a score of 200k.
Poor hiring data severely dented economists’ hopes that the Federal Reserve would hike the key interest rate again soon, according to a Reuters poll.
However, New York Federal Reserve President William Dudley was hawkish about the reports when he claimed in a later interview that two rate hikes this year were still possible.
Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast: Labour Market Conditions Report Ahead
The GBP/USD exchange rate could begin to recover this week as investors seek out profit-taking following the Pound’s lows, even if UK data underperforms.
Any further signs of US economic weakness are also likely allow the Pound to recover against the ‘Greenback’, however at the same time the US Dollar could trend higher if more positive data is released.
Due later today, April’s US labour market conditions index report is expected to narrow from its March contraction of -2.1 to -1.0. Printing closer to a positive result could bolster USD unless Fed rate hike concerns persist.
Tuesday sees the release of Britain’s March trade deficit update which, if below expectations, would certainly put more pressure on the Pound as it follows last week’s poor economic growth news. The goods trade deficit is currently expected to narrow from £-11.964b to £-11.200b.
The US wholesale inventories report is also due on Tuesday and is expected to escape contraction of -0.5% to score 0.1% for March.
The Pound Sterling to US Dollar (GBP/USD) exchange rate currently trends around 1.4465 while the US Dollar to Pound Sterling (USD/GBP) exchange rate trends in the region of 0.6917.
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