Markets have picked up right where they left off before the weekend, with GBP EUR and GBP USD exchange rates remaining mixed. The Pound is trending just above opening levels against the Euro, while tumbling deep into negative territory versus the US Dollar.
- GBP exchange rates mixed – Markets selling UK assets for US bonds
- Populism fears undermine Euro – Approaching Italian referendum causing jitters
- US Dollar rises on Fed hike bets – Trump economic policies predicted to boost inflation
- GBP EUR, GBP USD exchange rates – Heavy data day forecast to provoke market volatility
A continued sell-off of UK and Eurozone bonds weakened both the Pound and the Euro, boosting the US Dollar.
GBP Holding Gains after Labour Data Temporarily Unsettles Traders
UPDATE, 16.55, 16/11/2016; Mixed results from the latest UK labour market data caused a wobble in Pound exchange rates earlier today, but the subsequent losses have since been erased. Markets have returned to focusing on the fact that September’s ILO unemployment figure is now at an 11-year low. Traders had been concerned by an increase in jobless claims in October of 10,000, as well as an upwards revision to September’s claims figures from just 700 to a sizeable 5,600, but those jitters have now abated.
Soft Gains for Pound Exchange Rates as Markets Take Advantage of Weak GBP
UPDATE; Yesterday’s Brexit fears are wearing off today, allowing GBP EUR and GBP USD to make minor advances ahead of the day’s UK jobs data. There is predicted to be no change to the claimant count rate for October, although the number of people claiming out of work benefits is expected to have increased by 2,000 compared to a 700-person increase in September.
Pound Exchange Rates decline as Markets Flock to US Treasuries
Investors continue to pile into US bonds today, thanks to the appealing returns offered by such treasuries. President Elect Donald Trump has proposed a strong plan of infrastructure spending in an attempt to ‘double’ GDP. In the short term, this is predicted to increase wages and boost inflation. This means that investors are demanding higher yields for holding US government debt, otherwise strong inflation will eat away at their profits.
With treasuries in the US offering better returns, investors holding UK and US government debt are selling out of the assets, converting their cash into US Dollars and then buying USD-denominated securities. Yields on UK government debt are currently around their highest in half a year as prices fall in response to cooling demand. The large flow of capital out of the United Kingdom is therefore weakening the GBP USD exchange rate, although the GBP EUR exchange rate has been able to advance.
GBP EUR Climbs, EUR USD Exchange Rates Sink on Rising Policy Divergence Speculation
As well as the rising bets of US inflation, lingering fears of rising populism in the Eurozone continue to provide a boost for GBP EUR exchange rates. Markets are now taking the threat of rising populism across the Eurozone much more seriously now that Brexit and Trump have undermined their confidence in the status quo.
Of particular concern is an approaching Italian referendum regarding proposed changes to the way laws are passed. While the vote itself is on whether or not to limit the powers of the Italian senate – which often complicates and slows the passage of motions into law – analysts fear that, as was seen with the Brexit debate, the referendum has become a way of disenfranchised Italians to rail against the political classes.
Prime Minister Matteo Renzi, who came into power through a coup within his own party, has claimed that he would resign should the ‘No’ camp triumph in the vote. This could spark calls for an early general election; something particularly worrying for the markets considering the Eurosceptic Five Star Movement party is enjoying strong levels of support amongst voters.
As Renzi himself noted recently;
‘We’re in a situation where perhaps the Five Star Movement are allowed to lead this country. The people need to understand what voting ‘no’ here means: we learnt that in the UK.’
The only silver lining is that a weakening Euro may lessen the odds of more monetary stimulus from the European Central Bank (ECB). A softening Euro should work to boost inflation, allowing the Governing Council to avoid further monetary loosening.
Pound US Dollar Exchange Rates Tumble as Investors Scramble for US Bonds
The US Dollar continues to trend strongly this week, boosted by expectations of rising US interest rates and monetary policy.
According to Fiona Cincotta from City Index;
‘A Trump win had initially cast doubt on the probability of a rate increase in December, with the markets pricing in just a 50% chance of a hike on election night; however, this has since rebounded back.
With unemployment historically low and Trump’s heavy spending plans taking shape, inflation could well charge higher more quickly than initially forecast.’
Also furthering demand for the ‘Greenback’ and undermining GBP USD exchange rates is the fact that Donald Trump continues to be more moderated in his rhetoric than was seen during the election campaign. In an interview over the weekend, he admitted that he may not entirely repeal ‘Obamacare’, instead opting to reform the policy, as well as claiming some parts of the proposed Mexican border wall may in fact simply be fencing.
GBP EUR, GBP USD Exchange Rate Forecast; Top Tier Data to Create Volatility
Although the markets are currently fixated upon the latest political developments in the US, tomorrow holds enough high-impact data to potentially distract investors from obsessing over the President Elect.
The UK’s October consumer price index is due for release; fears of an inflation overshoot are likely to have been tempered by the strong boost GBP has received in the wake of the US elections.
GDP figures for the Eurozone, Germany and Italy are all due tomorrow, along with the German ZEW survey results.
The US also has tier-one data to offer; October’s advance retail sales are expected to have slowed by -0.1% to 0.5% on the month, although such an outcome is unlikely to dent the US Dollar’s bullishness.
Interbank GBP EUR, GBP USD Exchange Rates
At the time of writing the Pound Euro (GBP EUR) exchange rate was trending in the region of 1.16, while the Euro Pound (EUR GBP) was trading around 0.86.
The Pound US Dollar (GBP USD) exchange rate was trending in the region of 1.25, while the US Dollar Pound (USD GBP) exchange rate was trading around 0.79.
The Euro US Dollar (EUR USD) exchange rate was trending in the region of 1.07, while the US Dollar Euro (USD EUR) exchange rate was trading around 0.92.
