Although the Pound fluctuated yesterday as the UK’s first quarter growth figure came in just below forecast levels, Sterling continued to trade close to a four-year high against the US Dollar and was stronger against the Euro.
Sterling recovered losses against the US Dollar yesterday after a measure of US consumer sentiment unexpectedly declined and the GBP to USD exchange rate was holding steady ahead of the release of US growth data and the Federal Open Market Committee rate decision.
The Pound’s modest advance on the Euro was aided by the fact that yesterday’s disappointing German inflation data put the common currency under pressure.
Less-than-impressive German retail sales figures helped the Pound consolidate those gains this morning. If the Eurozone’s consumer price index fails to meet forecasts the Euro could fall and the GBP to Euro exchange rate may strengthen.
According to currency strategist Yuki Sakasai; ‘The market is cautious about the Euro area consumer price report after the German data came in below consensus. Should the report today surprise to the downside, that would boost bets for additional easing by the ECB and weaken the Euro further’.
The Pound was also supported against several of its peers overnight as the UK GfK consumer confidence report revealed that sentiment climbed to its highest level since mid-2007 in April.
The measure advanced from -5 in March to -3 in April. Economists had expected a reading of -4.
Just 12 months ago the index languished at -27, indicating a sharp turnaround in the confidence of the UK public.
The improvement was largely due to the UK’s brighter economic outlook.
In a statement issued with the figure GfK researcher Nick Moon asserted; ‘The seemingly inexorable rise of the index continues alongside a number of other economic indicators that continue to provide good news for the government.’
Although the UK economy expanded by 0.8 per cent in the first quarter of the year rather than the 0.9 per cent expected, the nation’s growth prospects are still robust and the International Monetary Fund expects the UK to perform more strongly than its Group of Seven rivals this year.
However, the expectation that the Bank of England intends to keep fiscal policy accommodative for the foreseeable future (despite upbeat domestic employment figures) is restraining the Pound’s upward momentum.
Yesterday BoE Governor Mark Carney was quoted as saying; ‘We all want the recovery to be sustainable and the early signs are consistent with that. When we do begin to see increases in interest rates they will be gradual and they will be limited. There is still considerable slack in the labour market. The Monetary Policy Committee is comfortable with the position we are at now’.
Today the Eurozone’s CPI and US growth figures will be the major cause of currency market movement.
Of course the Federal Open Market Committee’s upcoming rate decision could also inspire notable volatility.
Euro Exchange Rate Update – 01/05/14
Yesterday’s Eurozone inflation data was better than many industry experts had feared and the Euro consequently strengthened against the majority of its currency counterparts. The British Pound, meanwhile, remained softer after Tuesday’s slightly disappointing UK growth data.
The Pound to Euro exchange rate held declines overnight but Pound to US Dollar gains occurred as the USD tumbled following the Federal Open Market Committee’s policy announcement. While the Federal Reserve continued with the tapering of stimulus, as economists had expected they would, the central bank also restated its intention of keeping interest rates low.
On Thursday the Pound was boosted by the news that UK manufacturing expanded by more-than-expected in April, with the Markit gauge rising from 55.8 to 57.3 – moving further above the 50 mark separating growth from contraction.
The reading was a five-month high and reflects forecasts for the UK’s robust economic growth continuing in the second quarter.
In other UK news, house prices showed their most significant year-on-year increase since July 2007. House prices advanced by 1.2 per cent on the month and 10.9 per cent on the year.
Separate data showed fewer UK mortgage approvals that forecast in March.
As economic data for the Eurozone is lacking today, additional GBP/EUR movement might be limited.
GBP to USD fluctuations could occur in response to US initial jobless claims, personal spending/income and ISM manufacturing figures.
Investors will also be looking ahead to tomorrow’s UK construction data.
Pound (GBP) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,US Dollar,1.6811,
Pound Sterling,,Euro,1.2179,
Pound Sterling,,Australian Dollar,1.8111,
Pound Sterling,,New Zealand Dollar,1.9650,
US Dollar,,Pound Sterling,0.5949,
Euro,,Pound Sterling,0.8212,
Australian Dollar,,Pound Sterling,0.5522,
New Zealand Dollar,,Pound Sterling,0.5087,
[/table]
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