Volatility continues to build in currency markets, with the Pound, Euro, and US Dollar exchange rates all very much in focus. The Pound Euro (GBP/EUR) exchange rate is trading at levels of 1.1290, while the Pound US Dollar (GBP/USD) exchange rate is trending in the region of 1.2719.
Political uncertainty is dominating the British currency, while it’s the expectation of monetary policy easing at the Federal Reserve and the European Central Bank (ECB) which is dominating the agenda elsewhere. Theresa May stands down as leader of the Conservative Party today, although remains in role as a caretaker Prime Minister until a replacement is found, so this should have little meaningful impact on the British Pound. However, high-profile jobs and wage data from the US will leave the US Dollar exchange rate (USD/GBP, USD/EUR) very much in focus in the coming hours.
British Pound Exchange Rate Remains Volatile on Political News
With uncertainty continuing to surround Brexit, the new Prime Minister and the potential that a general election may be necessary before the year is out, Sterling is set to remain somewhat volatile. This was illustrated clearly yesterday when ‘over-interpretation’ of comments from Downing Street led to incorrect suggested that Theresa May would delay her departure until any successor had the confidence of the House of Commons, providing a short-lived boost to the Pound exchange rate. The report was later corrected, but as the narrative develops in the coming weeks, further bouts of volatility on the Pound exchange rates are likely to be seen.
US Dollar: Wage Inflation in Focus – Non-Farm Payrolls Ahead
Key economic releases from across the Atlantic today will include the Non-Farm Payrolls for May, plus the average wage growth data, Average Hourly Earnings. While employment has been running at close to full capacity for some months, it’s the sluggish pace of wage growth in what should be a highly contested market that is causing the greatest concern. Rising wages help fuel inflation, so without this it will put added pressure on the Federal Reserve to accelerate any intervention. The US Dollar is already on course for its worst week of trading against the Euro (USD/EUR) since last September. Any significant slowdown in wage growth today will raise fresh suggestions that the Fed needs to cut interest rates quickly; a move that would likely bolster both the Pound (GBP/USD) and the Euro (EUR/USD) against the Greenback.
GBP/USD, EUR/USD and GBP/EUR Exchange Rate Movements
The British Pound saw some volatility yesterday off the back of political speculation, which proved sufficient to briefly lift the exchange rate against the US Dollar (GBP/USD) to highs not seen since the start of the week. Gains here however proved to be short lived, with the Sterling/US Dollar exchange rate left languishing around its recent lows.
The ambitious pricing of the low-cost loans to Eurozone banks at around 0.3% higher than had been expected by the market was sufficient to lift the Euro against the US Dollar (EUR/USD) yesterday, although gains were short lived. With it looking increasingly as if the European Central Bank has now missed the opportunity to hike interest rates at all through this economic cycle, the Euro may find itself under renewed pressure in the near-term, especially if the Federal Reserve continues to defer the idea of a rate cut.
The Pound swung by almost a full cent against the Euro (GBP/EUR) during yesterday’s session. Having peaked off the back of rumours that Theresa May would delay her departure in order to try and avert a general election, Sterling then sold off. Downside pressures were magnified by the fact the ECB didn’t provide any real surprises in terms of monetary policy easing, although the Pound’s slide was limited. The win last night for Labour over the Brexit Party in the Peterborough by-election has potentially helped limit further losses here.
Why did it move? US Dollar South African Rand (USD/ZAR)
The South African Rand has remained under pressure throughout the week, with the US Dollar exchange rate moving out to highs not seen in almost nine months. Following the Gross Domestic Product (GDP) disappointment earlier in the week, this is adding to suggestions that the South African Reserve Bank (SARB) will need to cut interest rates soon in a bid to stimulate the economy. The next SARB meeting is scheduled for late July. Having traded as low at 14.40 this week, the pair now sits at 15.07, reflecting a close on 5.0% fall in the currency’s value.