Having ended the last week on a low note, the Pound begins trading today by registering a bullish recovery versus the Euro and US Dollar. Even comments from the Chairman of RBS questioning the effectiveness of low interest rates have failed to particularly weigh on GBP.
- Update: Can Pound hold gains after investors close short positions? – Record number of short Sterling positions fuel appreciation
- Pound Euro exchange rate storms ahead – Sterling rebounding after Friday’s weakness
- Euro uncertain before Merkel, Renzi and Hollande meeting – German, Italian and French leaders to discuss Brexit
- Pound US Dollar bullish – GBP USD advances despite hopes of Fed hawkishness this week
- GBP, EUR, USD exchange rate forecast – Quiet data day leaves market sentiment in charge
Although there is no domestic data to provide support, GBP EUR and GBP USD exchange rates are registering bullish gains virtually across the board today.
Lending for House Purchase Weakens, but Pound Remains Bullish
Mortgage approvals figures for the UK fell to an 18-month low in July, although the Pound has remained strong thanks to market relief the figures weren’t worse. The British Bankers Association (BBA) attributes the drop to the fact that buy-to-let landlords rushed to purchase properties before April, when a new stamp duty was introduced to help control the vulnerable market. Markets have been cheered by the fact that the weakness is not representative of a Brexit shock to the sector, although experts have warned it will still be a while before that impact is seen in the data.
(Last updated 12.50, 24/08/16)
Is the Pound Running Out of Momentum? Traders Close Short Positions
The Pound Euro (GBP EUR) and Pound US Dollar (GBP USD) exchange rates started the day strong on Tuesday after Monday’s bullish appreciation. The recovery was driven largely by investors closing the record number of short positions held against Sterling. This strong buyback continued to boost demand for the Pound during the session yesterday, but with many of those 94,000 short positions now closed, Sterling has opened today below opening levels. Losses could extend considering incoming mortgage figures are expected to show a weakening in demand. However, Tuesday’s CBI data outperformed expectations, so the Pound is starting today in a stronger position than it could otherwise have been had the data clocked in around forecasts.
(Last updated 08.46, 24/08/2016)
Pound Attempts Recovery after Weakening Friday on Government Borrowing Disappointment
The Pound is beginning to recover from Friday’s government borrowing figures disappointment today, charging against the Euro and the US Dollar. Borrowing figures did register a surplus on Friday, but investors and economists had predicted a stronger underspend than the data revealed. With the government receiving the proceeds of corporation tax from UK companies in July, analysts had hoped for a stronger month. With the figures suggesting that 2017 targets would now be missed, Sterling saw an end to the bull run sparked by positive post-Brexit data earlier in the week. Appetite has returned to the Pound today, with the current weakness making Sterling an attractive buy.
Also, confidence in the Pound has been boosted by continuing speculation that it will be a considerable time before the UK government invokes Article 50 of the Lisbon Treaty in order to begin the process of exiting the European Union. The Guardian notes that the two new ministries in charge of the process – the Departments for Exiting the European Union (DExEU) and the Departments for International Trade – are slow in getting themselves to an operational level. European Affairs Correspondent Jon Henley writes;
‘Meanwhile, DExEU, as it is known, has hired – mainly from elsewhere in the civil service – 150 of the 250-300 total staff it is expected to employ, and reportedly has yet to move into its permanent home. Some meetings still take place in Starbucks on Victoria Street, London. With the civil service a fifth smaller since 2010, fast-stream recruits are being drafted in, but negotiators, lawyers, economists, regulatory experts and management consultants from the private sector will prove essential.’
Euro Weak as Markets Await Renzi, Hollande and Merkel Meeting on UK Brexit Vote
Although weak against the Pound, the Euro is in a more mixed position overall. Markets are awaiting a trilateral meeting of the Italian, French and German heads of state; on the agenda will be the UK’s decision to leave the European Union. With the European Union having been shaken by the results of the ‘Brexit’ referendum, the meeting will be seen as an attempt to show solidarity and reinforce internal ties as well as the first steps towards establishing a negotiating position going forward for when the UK eventually triggers Article 50. The talks are the first of several weeks’ worth of meetings and summits between various EU leaders.
With nothing on the economic calendar, markets will be watching closely for any official statements or rumours regarding the content of today’s discussion. Weighing on the common currency, however, is a report from the German government which is expected to advise citizens to stockpile five days’ worth of drinking water and ten days’ worth of food for use in the case of attacks. The German government is intending to step up its security measures and defence spending after several recent incidents.
The Euro is bearish against the Pound and weak against the US Dollar.
Market Expectations of Fed Rate Hike Hints Keeps US Dollar Bullish
After Fed hawkishness last week, markets are eagerly expecting the Federal Reserve’s Jackson Hole Economic Policy Symposium, in which it is expected that US central bankers will give strong signals of an incoming interest rate hike. Federal Reserve Vice-Chairman Stanley Fischer was the latest to offer an upbeat look on the US economy, releasing prepared remarks in which he describes core inflation as ‘within hailing distance’ of the Fed’s 2% target.
Federal Reserve Chair Janet Yellen will be giving a speech on Friday, with HSBC economists suggesting;
‘Yellen could provide her current assessment of the outlook for job growth, inflation and economic growth, and indicate whether caution is still appropriate or whether a rate hike might be on the horizon.’
The Fed may have to signal their intention to tighten policy before the end of 2016, according to Rabobank Head of Financial Markets Research for Asia Pacific Michael Every. Not doing so could be seen as an omission that the central bank is running out of options;
‘We know what underlying problems we have in the global economy: Far too much of it is ice-cold, pockets of it are red hot. And we effectively would be saying monetary policy can’t do anything to make the colder parts warmer and it’s not prepared to do anything to make the hotter parts colder. That’s going to make it extremely unstable.’
Pound Euro (GBP EUR), Pound US Dollar (GBP USD) Exchange Rate Forecast; Quiet Data Keeps Focus on Market Expectations
With nothing of note on the calendar for the UK, Eurozone or the US, market sentiment will continue to drive movement for GBP EUR and GBP USD exchange rates today. Tomorrow promises plenty of data, suggesting increased volatility in the currency markets.
For the UK, the results of the latest Bank of England (BoE) liquidity auction will give markets a measure of how well the City is coping with any post-Brexit volatility. Headwinds for the Pound could come from the Confederation of British Industry (CBI) data, with its Trends Total Orders figure for August expected to decline from -4 to -10.
French, German and Eurozone manufacturing, services and composite PMIs are expected to show a marginal weakening in output across the currency union. However, Eurozone consumer confidence is predicted to have edged towards optimism, climbing from -7.9 to -7.7.
While not as influential as the ISM measure, Markit’s US manufacturing PMI could create problems for the US Dollar if it slows further than the -0.2 point decline to 52.7 already predicted. With expectations that the Fed will signal further monetary tightening based upon current strong economic readings, any data that undermines the outlook for the US economy could cause belief that the Fed will be hawkish to waver.
Current GBP, EUR, USD Conversion Rates
The Pound Euro (GBP EUR) exchange rate is currently trading in the region of 1.1611, while the Euro Pound (EUR GBP) exchange rate is currently trading in the region of 0.8611.
The Pound US Dollar (GBP USD) exchange rate is currently trending around 1.3119, while the US Dollar Pound (USD GBP) exchange rate is currently trending around 0.7622.
