Despite the ongoing political turmoil, the British Pound is holding steady against both the Euro (GBP/EUR) and USD Dollar (GBP/USD). However, there’s little upside emerging off the back of US promises for a significant trade deal in the event that the Brexit process is finally completed, underlining just how exposed Sterling is right now. Support is a consequence of weakness elsewhere as opposed to any meaningful strength for the British currency.
US Dollar on the Back Foot as Rate Cut Calls Grow
The US Dollar has continued its sell-off against major currencies, including the British Pound and Euro. Following Monday’s comments that a rate cut may be necessary from the head of the St Louis Federal Reserve. Central bank Chair Jerome Powell added his commitment to such a policy in comments made yesterday. However, a consensus is building that other central banks may be pushed into adopting a more dovish tone in the coming months too as they attempt to maintain economic expansion. If this proves to be the case, then any downside for the US Dollar exchange rate could soon find itself being reversed.
ECB Rate-Setting Meeting in Focus as Eurozone Inflation slips
Following yesterday’s disappointing Eurozone inflation reading which came in below expectations at just 1.2%, the European Central Bank’s (ECB) policy-setting meeting which gets underway today will be under scrutiny. There’s an expectation that the central bank may use this opportunity to announce details of its low-cost ‘TLTRO’ loans to banks in the Eurozone, but will stop short of taking any more radical action just yet. With the Euro exchange rate having gained ground against the US Dollar (EUR/USD) in recent days off the back of the Fed’s dovish rhetoric, action that sees the common currency weaken a fraction will be welcomed by exporters from the currency bloc too.
GBP/USD, EUR/USD and GBP/EUR Exchange rate movements
The Pound continues to post modest gains over the US Dollar (GBP/USD) amid speculation that the Federal Reserve will need to take a more accommodative stance when it comes to monetary policy. Any further suggestions that US interest rates are set to fall, and this is something which could happen in just two weeks’ time, will have the potential to further boost the Pound US Dollar exchange rate between the two currencies regardless of the disarray in the UK.
Overnight, the Euro exchange rate pushed out to highs against the US Dollar (EUR/USD) which hadn’t been seen since the middle of April. This occurred despite downbeat inflation data, so today’s Eurozone Retail Sales figures or any further clues as to what the European Central Bank may do at this week’s policy meeting could leave the common currency under some meaningful pressure.
The Pound made some modest gains over the Euro (GBP/EUR) off the back of yesterday’s lacklustre Eurozone inflation reading. The UK Services Purchasing Managers’ Index (PMI) will be closely watched this morning but assuming there are no surprises there, the British Pound could be well positioned for further gains as central banks elsewhere turn increasingly dovish.
Why did it move? US Dollar to South African Rand (USD/ZAR)
The South African Rand came under pressure against the US Dollar (ZAR/USD) yesterday after South Africa published Gross Domestic Product (GDP) data for the first quarter. With a fall of 3.2%, this showed the reading’s biggest contraction since 2009 and is leading to increased speculation that the South African Reserve Bank (SARB) may need to cut interest rates. Having touched a low of 14.40 off the back of talk of a Federal Reserve rate cut, the pair is now trading around 14.75.
The Pound to Euro (GBP/EUR) exchange rate is trading at 1.1269. The Pound to US Dollar (GBP/USD) exchange rate is trending in the region of 1.2697.
Update: The US Dollar has been trading in a tight range against the Euro (USD/EUR) and Pound (USD/GBP) on Thursday as markets digest yesterday’s data points. While the US ISM Non-Manufacturing/Services Composite Index came in above expectations at 56.9 in May, rather than the 55.4 forecast after April’s 55.5. However, the ADP Employment Change stat usually seen as a precursor to Friday’s Non-Farm Payrolls data disappointed significantly, coming in at only 27K in May, far below the 183K forecast and the previous month’s 271K.