April 8th, 2016
The shock of yesterday’s ‘Brexit’ polling data has been compounded today by the news that taxpayers will fund a pro-EU leaflet campaign. Pound Sterling (GBP) has weakened against the US Dollar (USD) and the Euro (EUR) in response to the news, which provoked outrage among ‘Brexit’ supporters.
Only overseas weakness has given the Euro any strength today, with approaching European Central Bank (ECB) Monetary Policy Meeting Accounts keeping sentiment cool in the interim. The fallout from yesterday’s poor PMI results continues to diminish appetite for the common currency, while further arguments over the Greek bailout are raising concerns.
Meanwhile, the US Dollar is on a weak footing after the release of minutes from the latest Federal Open Market Committee (FOMC). The account of the monetary policy meeting has further quashed trader hopes of an interest rate hike at the coming April meeting, despite the recent strong data, severely weakening the US Dollar today.
GBP/USD, GBP/EUR Exchange Rates: UK Taxpayers to Fund UK Government Pro-EU Leaflet
The ‘Brexit’ issue has returned to weaken Pound sentiment further, although Sterling was already severely weakened by the British steel industry crisis, the ‘Panama Papers’ and political pressure on David Cameron regarding his tax affairs. In what could be a decisive blow to the ‘Remain’ campaign, it has emerged that the UK government will use public money to fund a £9 million leaflet campaign in support of Britain’s EU membership, sparking fury and further depressing the Pound.
The Pound Sterling to US Dollar (GBP/USD) exchange rate has trended between 1.4010 and 1.4420 during the past seven days.
Euro appetite is weak today, with the common currency in negative territory against many of the major currencies. Traders are awaiting the latest ECB meeting minutes, hoping to find clues as to the direction of future monetary policy. ECB Governor Mario Draghi may have signalled that interest rates wouldn’t be pushed deeper into negative territory, but the latest poor Eurozone data has seen many speculating that even more stimulus may be necessary.
Monetary policy meeting minutes are also responsible for causing a US Dollar slide today. Despite several hawkish speeches from Federal Reserve officials in recent weeks, accounts of the latest FOMC meeting suggest that it is not just Fed Chair Janet Yellen who is concerned about global conditions. The document has doused hopes of an imminent interest rate hike. Nevertheless, the US Dollar has been able to capitalise on Pound and Euro weakness to make strong gains.
The Pound Sterling to Euro (GBP/EUR) exchange rate has traded between 1.2326 and 1.2674 during the past seven days, while the US Dollar to Euro exchange rate (USD/EUR) has trended between 0.8736 and 0.8837.
So, what’s likely to happen in the week ahead?
With none of the issues currently plaguing the Pound likely to be resolved in coming days, political developments could prove to be the main driver of GBP/USD and GBP/EUR. Manufacturing production figures tomorrow could fuel the argument over the British steel industry, either justifying or undermining the case for nationalisation. The next round of inflation data is due for release on Tuesday, which could further weaken the Pound if it shows slow progress.
There are more Fed speeches due in the days ahead, while Wednesday promises a slew of US data, including retail sales figures and the Fed’s Beige Book. Speculation regarding the FOMC could continue to drive movement for the ‘Buck’.
German inflation data on Tuesday will be closely watched, especially if today’s ECB minutes raise speculation regarding more policy easing. French and Spanish consumer price figures will follow on Wednesday, giving economists a better picture of the effect of loose monetary policy.
