The Pound Sterling to Euro (GBP/EUR) exchange rate began Thursday’s European trading rather bearish, while the Pound Sterling to Canadian Dollar (GBP/CAD) and Pound Sterling to US Dollar (GBP/USD) exchange rates remained in a tight range as investors attempt to forecast the outcome of Friday’s US Change in Non-Farm Payrolls.
Will the Pound Sterling to US Dollar (GBP/USD) Exchange Rate Slip on US Payrolls?
Wednesday saw the release of US ADP Employment Change, which came in a lot lower than economists had predicted. The general consensus was for 225K employment growth after February missed forecasts and reached only 212K. However, March just added insult to injury when it registered a much weaker 189K. The ADP Employment Change figure is frequently used by investors as a gauge for the Change in Non-Farm Payrolls and Unemployment Rate ecostats which usually follow a few days after.
Industry expert Wilmer Stith commented: ‘The market is bracing for the payrolls number on Friday. We got a little disappointing ADP number.’
Friday’s payrolls figure is expected to reach 248K in March after February’s 295K. Barclays remained upbeat about the upcoming Friday release, stating: ‘We view the 25,000 deceleration in March ADP employment growth as consistent with our forecast for a 245K rise in private payrolls in Friday’s employment report from the Labour Department.’ The reason such a heavy emphasis on payrolls figures exists is the US Federal Reserve suggesting that the much anticipated interest rate hikes would be driven by a tighter labour market. However, every month the US Non-Farm Payrolls and Unemployment Rate ecostats place pressure on the US Dollar and can cause massive exchange rate swings dependent on the result. Will this Friday disappoint though?
Economist Paul Ashworth stated: ‘At some point the average monthly gain in payrolls is going to drop back towards 200,000. This will be heralded as a disastrous collapse by some, but it won’t be anything of the sort.’ ‘The gains of nearer 300,000 per month that we’ve seen over the past six months are simply unsustainable.’
Friday’s US employment data is likely to cause massive US Dollar to Pound Sterling (USD/GBP), US Dollar to Canadian Dollar (USD/CAD) and US Dollar to Euro (USD/EUR) exchange rate movement.
Euro to Pound Sterling (EUR/GBP) Forecast to Tumble on Greece/Russia Deal
Meanwhile, the Pound Sterling to Euro (GBP/EUR) exchange rate has been sensitive to any developments between Greece and its creditors in the past few months. Greece has been attempting (very slowly) to renegotiate its austerity deal in the hope of bargaining a better repayment scheme and spurring economic growth. However, talks have been moving extremely slowly and Thursday has seen French finance minister Michel Sapin comment that Greece must work harder on its reforms.
Sapin stated: ‘There is progress with the last list… Is there need for more progress? Yes – in the quantification of the measures.’
Furthermore, a meeting between Greece and Russia has been moved from May to next week—perhaps offering the two countries the chance to negotiate a deal in case Eurozone meetings go south. UPDATE: European Central Bank (ECB) minutes were released today which showed the central bank is concerned that geopolitical risks could offset the Eurozone’s economic recovery. The ECB minutes read: ‘The downside risks to growth were seen as stemming from geopolitical and political risks inside and outside the Euro area. The possibility of weaker-than-expected investment growth was also considered to be a downside risk.’
ECB accounts very much in line with what we wrote at that time (5 March) – ECB (cautiously) upbeat and flexible. http://t.co/8tvkWfOorC — Frederik Ducrozet (@fwred) April 2, 2015
Canadian Dollar to Pound Sterling (CAD/GBP) Exchange Rate Fluctuates on Oil Prices
The Canadian Dollar could be in for movement later in Thursday’s European session with the release of the Canadian International Merchandise Trade Balance figure. An upbeat ecostat could help the Canadian Dollar to US Dollar (CAD/USD), Canadian Dollar to Euro (CAD/EUR) and Canadian Dollar to Pound Sterling (CAD/GBP) exchange rates gain. However, another factor causing major Canadian Dollar movements is oil prices. As Canada’s largest export, the ‘Loonie’ is extremely sensitive to any oil price fluctuations. Wednesday’s North American session saw oil prices record the biggest daily gain in almost two months as traders hedged their bets that crude production levels were nearing their pinnacle.
See the trend over the past 10 years in Brent crude oil price http://t.co/8ML80f9Q9b pic.twitter.com/24Ma0juDYK — St. Louis Fed (@stlouisfed) April 2, 2015
Crude has softened slightly in Thursday’s European session, but WTI oil remains at around $49 per barrel.
Pound Sterling (GBP) Exchange Rate Forecast: GBP/EUR, GBP/USD, GBP/CAD
The Pound Sterling exchange rate took quite a hit on Wednesday when the Office for National Statistics (ONS) revealed that labour productivity had slipped in quarter four, a complete disappointment for a strengthening UK economy. The ONS stated: ‘UK labour productivity as measured by output per hour fell by 0.2% in the fourth quarter of 2014 compared with the previous quarter. In 2014 as a while, labour productivity was little changed from 2013, and slightly lower than in 2007, prior to the economic downturn.’ Adding to the disappointment, Markit’s UK Construction PMI has printed unfavourably on Thursday, declining from 60.1, below the 59.8 forecast to 57.8. However, the ecostat remains above the 50.0 benchmark which separates expansion from contraction.
Markit stated: ‘Some construction firms noted that uncertainty related to the forthcoming general election had encouraged clients to delay spending decisions. The latest survey pointed to an element of caution among construction companies in terms of additional job hiring, with overall employment numbers rising at the least marked pace since December 2013.’
However, it’s not all bad news with UK Business Confidence hitting nine-year highs.
UK Construction #PMI Business confidence at highest level for just over nine years, despite growth slowdown in March #GBP #ukhousing — Shaun Richards (@notayesmansecon) April 2, 2015