Pound Sterling to Euro (GBP/EUR) Conversion Rate Predicted to Tick Higher despite Speculation Regarding BoE Rate Hike Delays
The Pound Sterling to Euro (GBP/EUR) exchange rate edged higher by around 0.4% on Thursday morning.
The UK has been one of the best performing economies in 2015 and the Pound is holding a strong position despite recent depreciation as the year draws to a close. Speculation that weak wage growth and below target inflation will cause the Bank of England (BoE) to delay a benchmark interest rate hike is the primary reason for the lack of demand today. In addition, concerns referring to the forthcoming referendum on the UK’s membership in the European Union have dragged on Sterling gains. Whilst the full extent of the economic ramifications of a Brexit are unknown, many analysts are convinced that global businesses will move headquarters away from London and foreign investment will wane heavily.
‘A vote by the UK to leave the EU next year would represent the start of a highly uncertain two-year process to renegotiate the terms of our relationship with the bloc’s 27 other member states. This uncertainty will represent a significant negative demand shock for both the UK and the EU, exacerbating many of the UK’s macroeconomics vulnerabilities (such as the large current account deficit) mainly through confidence effects, which would lower investment, trade, and consumption. Even if some form of agreement is ultimately reached that maintains relatively free access for capital, goods and labour between the UK and the EU after exit, some economic damage would be experienced in the intervening period,’ stated Mujtaba Rahman, Eurasia Group.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.3605.
Better-than-Expected Greek Retail Sales Not Enough to Offset Euro Losses
Despite the fact that the solitary European economic data publication today bettered the median market estimate, the single currency is trending lower versus its major peers. October’s Greek Retail Sales was forecast to see a -3.36% contraction in consumer spending but the actual result revealed only -2.5% contraction. It is fair to say that this result is still not positive by any means which likely accounts for the lack of Euro appreciation in response.
One of the major issues dragging on demand for the common currency is political uncertainty in Spain. With the acting Prime Minister unable to successfully coordinate a coalition there is the potential for massive policy changes. ‘There is huge worry among the Ibex-35 [the stock market index of leading Spanish companies],’ said Lorenzo Bernaldo de Quirós, chairman of Freemarket, a Madrid consultancy. ‘No matter what happens we are looking at four months of uncertainty and instability. That will hit investment and consumption. There will be an economic bill to pay.’
US Dollar (USD) Fluctuates ahead of Labour Market Data
The Pound Sterling to US Dollar (GBP/USD) exchange rate was trending within a limited range on Thursday morning.
The US Dollar has had a positive end to the year after the Federal Reserve hiked the benchmark interest rate for the first time in nearly a decade. Many analysts predict that the Federal Open Market Committee (FOMC) will look to increase the overnight cash rate at least twice in 2016. Should this be the case the US economy is likely to be one of the best performing in 2016. One thing is for certain however, the Fed will want to be very cautious and gradual with regards to tightening monetary policy, especially with inflation still very low. Manufacturing growth will also be particularly significant to the Fed’s policy outlook.
‘Manufacturing has been relatively disappointing,’ said Chad Moutray, chief economist at the National Association of Manufacturers. ‘For the Fed to continue raising rates, they’re going to be looking for progress in the broader economy and that obviously includes manufacturing.’
Later today US Continuing Claims and Initial Jobless Claims data has the potential to provoke changes for the US Dollar.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending in the region of 1.4824.
GBP to EUR,USD Exchange Rate Forecast: US Labour Data to Provoke Volatility
Given the absence of British economic data today, and with no further European economic data to be published, the North American labour market data is most likely to provoke changes for both the Pound Sterling to Euro (GBP/EUR) and the Pound Sterling to US Dollar (GBP/USD) exchange rates. With thin trading volumes there is the potential for heightened volatility in response to the data, although market movement has been comparatively subdued today as investors prepare for New Year’s celebrations.
The Pound Sterling to Euro (GBP/EUR) exchange rate was trending within the range of 1.3537 to 1.3610 during Thursday’s European session.
The Pound Sterling to US Dollar (GBP/USD) exchange rate was trending within the range of 1.4811 to 1.4845.
