Update: The Pound hit a one-month low against the US Dollar (GBP/USD) and tumbled against the Euro (GBP/EUR) as Brexit worries pushed the Sterling exchange rates lower across the board. It’s expected that remain-supporting MPs will rebel against Theresa May on a number of amendments being voted on today. More political uncertainty could create significant Sterling movements.
Interbank ranges seen so far today:
GBP/EUR – 1.1312-1.1414
GBP/USD – 1.2773-1.2877
Yesterday, the Pound to US Dollar (GBP/USD) exchange rate experienced some volatility, while the Pound to Euro (GBP/EUR) managed to climb. Hopes for a delay in the UK’s divorce to the EU were offset by soft UK inflation, which hit a two-year low.
The month of January saw a -0.8% contraction, while the annual figure dropped from 2.1% to 1.8%. The core measure held steady at 1.9%.
Economist Tej Parikh commented:
‘For the past two years, households have been squeezed between high prices and weak wage growth. With inflation now at a two-year low and growing upward momentum in pay packets, consumers are likely to feel less of a pinch on their wallets. This easing in the cost of living should provide some uplift for the High Street just as consumer confidence appears to be waning.’
EUR/USD Registers Biggest Daily Fall – Euro Awaits GDP Growth Data
Meanwhile, the Euro registered its most significant one-day fall of the year versus the US Dollar (EUR/USD) in Wednesday’s trading session. There could be more pressure ahead for the EUR/USD exchange rate after German and Eurozone growth stats. The German Gross Domestic Product (GDP) reading came in flat on the quarter in Q4, at 0.0%, narrowly avoiding recession. On the year, the stat slipped from 1.1% to 0.6%, below the 0.8% forecast. The non-seasonally adjusted print was a little more positive, at 0.9% from the previous 1.1%. Eurozone GDP growth is expected to hold steady at 1.2% in Q4 on the year, with the quarter-on-quarter reading reaching 0.2%.
Economist Claus Vistesen commented:
‘Just as bad as we feared, adding to our conviction that today’s second estimate quarter-on-quarter for the eurozone as a whole will be revised down, by 0.1pp, to 0.1%. We don’t see numerical details in this report, but the statistical office provide hints, indicating that domestic demand, mainly investment in construction and machinery and equipment, and government spending supported the economy. By contrast, growth in consumers’ spending remained subdued, and net exports remained a severe drag on headline GDP growth.’
Investors in the Euro to Pound (EUR/GBP) and Euro to US Dollar (EUR/USD) exchange rates will be waiting for the Eurozone GDP print to offer the common currency some further direction.
Update: Eurozone Growth Remains at 1.2%, BoE’s Policymaker Vlieghe Speaks about Brexit
The Eurozone’s second GDP estimate fell in line with forecasts, still expected to register 1.2% on the year in the fourth quarter. Out of Europe’s Big Five, the UK’s economic growth was third-best. Spain registered 0.7% expansion in the fourth quarter on the year, while France registered 0.3%, the UK 0.2%, Germany flatlined at 0.0%, while Italy noted a -0.1% contraction.
Meanwhile, Bank of England (BoE) policymaker Gertjan Vlieghe has been speaking about the effect of Brexit, suggesting that since the vote over two years ago, the UK economy has lost a minimum of £80B.
‘UK growth in the past two years has been weaker than we would have expected based on the performance of the global economy alone. Based on what happened in the rest of the world we would have expected UK growth to accelerate, but actually it slowed.’
Pound Sterling to US Dollar (GBP/USD), Euro (GBP/EUR) Exchange Rate Forecast Today
Today the Pound to US Dollar (GBP/USD) and Sterling to Euro (GBP/EUR) exchange rates have started on the back foot. Although voting in UK parliament takes place today, it seems as if much more significance is being placed on the votes on February 27th. While Sterling crosses may experience some volatility today, it’s more likely the Pound to Euro and Sterling to US Dollar exchange rates will be sensitive to developments in a few weeks time.
Yesterday’s the US budget deficit figures highlighted the problems with US President Donald Trump’s business tax cuts. While the idea might have been to see lower taxes translate into more investment and a broader economy, the idea hasn’t paid off. If Trump can’t close the gap, US economic growth could suffer, and the US Dollar may have a reason to weaken in the long run.
The US will release the latest Advance Retail Sales stats today, with December expecting to show 0.1% growth on the month.
Spanish political uncertainty could hinder the Euro in coming sessions if a snap election is called. Investors in the Euro exchange rate will be watching closely for any sign of political upheaval.
The GBP/USD and EUR/USD currency pairs could continue to soften if it appears US-China trade talks are making good progress.
Indian Rupee Softens Against US Dollar (INR/USD)
While the Indian Rupee may have registered gains against the US Dollar (INR/USD) in recent sessions, Wednesday saw the currency pair trend lower. The INR/USD exchange rate was trending lower on broad-based USD strength as oil importers strengthened the US currency.
The Pound to US Dollar (GBP/USD) exchange rate is trading at 1.2824, around -0.22% lower. The Euro to US Dollar (EUR/USD) exchange rate is trading in a tight range at 1.1263.
Video credit: The Resolution Foundation