The Pound to Euro (GBP/EUR) exchange rate has begun Tuesday trending lower, while the Pound to US Dollar (GBP/USD) currency pair climbs by around 0.18% at levels of 1.2684. Disappointing economic data, concerns over whether a no-deal Brexit is back on the table and uncertainty as to who will be the next UK Prime Minister all continue to weigh on the outlook for the British Pound. Suggestions that a US interest rate cut could be imminent served up a little support for Sterling, but in the bigger picture, these gains still look tenuous given the sheer number of unknowns which are in play.
Update: ThePound Sterling exchange rate climbed in the latter half of Tuesday’s session, after previously hitting five-month lows when data revealed the UK construction sector had contracted in May. The Markit data showed a decline in its Purchasing Managers’ Index, from 50.5 in April to 48.6 in May.
US Dollar Skids on Talk of a US Rate Cut
Last night, the US Dollar reacted to suggestions from the Federal Reserve that interest rates may soon need to be cut. Sustained economic growth for the world’s largest economy is being threatened by the self-inflicted slowdown in global trade as well as lacklustre inflation. The news was sufficient to drive some meaningful gains for both the British Pound against the US Dollar (GBP/USD) as well as for the Euro versus the US Dollar (EUR/USD). The next Federal Open Markets Committee (FOMC) meeting, which would offer the usual venue for making any such announcement of a rate cut, is scheduled for June 18th and 19th.
Are Pound Sterling’s Gains at Risk of Being Short-Lived?
The British currency may have posted gains last night against the US Dollar (GBP/USD) amid the idea of a US interest rate cut, but the Pound continues to underperform against the Euro (GBP/EUR). UK economic data is disappointing as manufacturers are now struggling to work with buyers in the European Union. What’s more, as the race to become Conservative Party leader heats up, there’s a mounting concern that a desire by the front runners to push Brexit through quickly could inflict further damage on an already depleted currency. Short positions against the Pound have been reported as being at their highest levels in almost three months, although with limited UK economic data due for release in the short-term, the Sterling exchange rate may be able to avoid any immediate disappointment.
GBP/USD, EUR/USD and GBP/EUR Exchange Rate Movements
The British Pound found some support against the US Dollar (GBP/USD) last night as talk of a US interest rate cut emerged. Gains, however, were capped by the ongoing concern surrounding political turmoil in the UK and the accompanying uncertainty as to how Brexit may be executed in the coming months.
Unencumbered by the same degree of political uncertainty as the Pound, the Euro soared against the US Dollar (EUR/USD) yesterday. The exchange rate pushed out to the May highs and managed to sustain those gains overnight. However, with Eurozone inflation and unemployment data due for release later this morning, the risk of a reversion is certainly present.
The Pound slumped against the Euro (GBP/EUR) yesterday morning after UK Manufacturing data showed the sector sliding into contraction. Brexit is seen as the culprit here and losses mounted through the day. Further risk on the downside could well be seen unless there are some meaningful shortfalls in the Eurozone economic data which is due for release shortly.
Why Did it Move? – Australian Dollar to US Dollar (AUD/USD)
The Reserve Bank of Australia (RBA) cut interest rates by a quarter of a percent last night, but this failed to disrupt the Aussie Dollar’s broader run of gains against the Greenback (AUD/USD). The cut itself had been widely expected but the accompanying message from policymakers showed they remained reasonably upbeat about the global economic outlook. The pair has been moving higher since the start of the month, with investors finding optimism from some privately issued Chinese Purchasing Managers’ Index (PMI) data. Having started the week around 0.6920, the AUD/USD exchange rate now trades around 0.6990, almost 1.0% higher.