The week ahead has the potential to be a critical one for the British Pound’s exchange rate. A number of key economic updates due in the coming days have the potential to reveal just how damaging the latest Brexit delays have been. If UK wage inflation remains robust and Gross Domestic Product (GDP) growth can be maintained, then there’s scope for some upside for Sterling to be seen. At the same time, with Theresa May standing down as party leader on Friday, the race to replace her and become Prime Minister, is now well under way. Although the proposed policies of the front runners could influence the British Pound, attention is more likely to remain focused on whether a general election will now prove necessary.
Trade Tensions Hit US Economy – US Dollar Falls
Friday’s disappointing unemployment and wage inflation data from the US has provided fresh evidence that the world’s largest economy is now feeling the effects of the global trade dispute. This news was sufficient to drive the DXY Dollar index briefly down to lows not seen since mid-March ahead of the weekend break, although losses have, to some extent, since been reversed. The British Pound made only the smallest of impressions on the US Dollar (GBP/USD), with political uncertainty continuing to dominate in the UK. Gains for the Euro over the US Dollar (EUR/USD) have proved to be rather more sustainable.
Pound Sterling Forecast: Key UK Economic Indicators Expected
This week will see a flurry of significant updates over the health of the UK economy. A rolling three-month UK GDP reading is due this morning, and after a burst of activity as a result of companies stockpiling ahead of the expected Brexit date earlier this year, any hints as to just how dramatic a decline is being seen by industry will be closely watched. Tomorrow’s unemployment and average wage data will similarly be in focus. Any notable shortfalls here will again have the potential to serve another blow to an already beleaguered British Pound exchange rate.
Meanwhile, the weekend press has been awash with positioning from the candidates who are now battling it out to replace Theresa May as Conservative Party leader. Their respective stances over Brexit are important to understand as if the final contenders are all taking a hard-line view over the event, fresh uncertainty is likely to weigh on Sterling against major currencies including the Euro (GBP/EUR) and US Dollar (GBP/USD). A war of words has already started between Boris Johnson and French Prime Minister Macron over whether the £39 billion ‘divorce’ settlement can be withheld. Again, such battles will do little to support the Pound in the medium-term.
GBP/USD, EUR/USD and GBP/EUR Exchange Rate Movements
The Pound rose against the US Dollar (GBP/USD) on Friday after the significantly weaker-than-expected US employment numbers. Gains for Sterling have proved to be rather short-lived, with political uncertainty continuing to dominate the agenda for the British Pound.
The Euro also jumped higher on Friday against the US Dollar (EUR/USD) in the wake of the US Change in Non-Farm Payrolls stat, making for the pair’s best weekly gain in 10 months. Without the overhang of political uncertainty and with markets already pricing in a more dovish stance from the European Central Bank (ECB), the Euro has been able to consolidate most of Friday’s gains.
The Pound continues to languish against the Euro (GBP/EUR); extending the five-cent decline, the GBP/EUR exchange rate has posted over the last five weeks. In overnight trade, the Pound against the Euro reached its lowest level since mid-January and with a Brexit compromise looking less likely amid UK political wrangling, downside pressure may prevail.
Update: Pound Sterling Sinks as UK Growth Slips on Brexit Chaos
As Monday’s European trading continued, the Pound slipped against the US Dollar (GBP/USD) and Euro (GBP/EUR). The Pound has dipped below the $1.27 mark against the US Dollar after the latest UK Gross Domestic Product (GDP) reading showed a decline in the three months through April on the year, at only 0.3%. Economists had forecast a slip from 0.5% to 0.4% but Brexit uncertainty seems to be weighing on the British economy more than expected. Industrial Production, Manufacturing Production, and Construction Output all noted contractions in April also.
Tuesday has begun with the Pound trading in a tight range between the Euro and US Dollar. Yesterday evening it was revealed that 10 Tory candidates will be running to replace Theresa May, with Boris Johnson seemingly the one to beat. The first round of voting will commence on Thursday 13th June, and investors will be watching closely. Meanwhile, the UK’s labour market data will be out this morning in the form of the Jobless Claims Change, Unemployment Rate, and Average Weekly Earnings stats, which could prove influential for Sterling.
Why did it move? US Dollar to Mexican Peso (USD/MXN)
The US Dollar slumped by around 3.0% against the Mexican Peso (USD/MXN) last night after Donald Trump backed away from enforcing fresh tariffs against his Southern neighbour which were due to come into force today. The decision could still be reversed if Mexico doesn’t manage to sufficiently stem migration but as it stands now, the move brings with it a significant benefit for the Mexican economy. Having traded as high as 19.78 on Friday, USD/MXN now trades at 19.20.