Sterling Resilient to Euro and at a 7-Month High to US Dollar
The Pound was up to €1.18 against the Euro this morning after the Euro fell in the wake of the European Central Bank’s decision not to adjust their monetary policy yesterday. Today’s GDP figures show that the UK’s economy has slowed down sharply, by more than was expected in the first quarter of this year. The Pound has been resiliently rising against the Euro and US Dollar, in spite of the news.
The US Dollar is at a 7-month low against the Pound with the rate on target to hit $1.30, as Sterling continues rising. The US is expected to show the weakest economic performance in 3 years in a report due today. It’s not an indication that the economy isn’t strong, rather an anomaly caused by an unseasonably warm winter and lower consumer spending.
Pound Sterling – UK Markets
Ahead of the weekend, the Pound is trying to get back on solid ground against the Euro after it slid to €1.17 on Monday. This morning, the Pound was at €1.18. According to analysts, Sterling “shows strong resilience” and has a “fair valuation against the Euro at the present time,” but is unlikely to reach the magical level of €1.20. The future correlation of the pair very much depends on the political events in Europe in the coming months. With that in mind, economists expect markets to remain unstable and are forecasting that the GBP/EUR exchange rate will be anywhere between €1.00 and €1.30, towards the end of 2017.
Friday’s economic calendar is punctuated by the announcement of the UK GDP figures for the first quarter of the year. The increase of 0.3% is below the anticipated 0.4%-0.5% and far less than 0.7% at the end of 2016. However, the Office for National Statistics (ONS) reported that economic growth has increased from 1.9% to 2.1% year-on-year.
Good news for the Pound came from Royal Bank of Scotland (RBS), which, for the first time in nearly two years, announced a profit of £259m for the first quarter. At the same time last year, RBS reported a loss of a £968m.
This is a good week for the British currency against the US Dollar, as Sterling has risen 1.4% over the last five days. Today, the Pound against the US Dollar was at $1.29. Experts expect the Pound to keep its strong course and “to rally hard in a bid to conquer [the] 1.30 handle” next week.
US Dollar – US Markets
The US Markets today will be influenced by the results of the US GDP, which once again would probably not meet expectations, and is predicted to rise only 2.1% for the first quarter of 2017. This would mark eleven consecutive years of annual growth below 3% for the US economy. President Trump’s pledge to boost the economy by cutting taxes, increase government spending on public projects and reduce regulations is yet to happen and, according to analysts, it will take a while before the results are visible. However, the news will possibly not affect major markets’ dynamic and the USD/EUR pair will remain stable at €0.91.
Euro – European Markets
On Friday, the Euro advanced (0.5%) against the US Dollar, reaching the $1.09 peak that it enjoyed in the beginning of the week. The rate spiked because of the announcement of the Eurozone’s core CPI figures. The stats were better than expectations, driving the Euro’s value up against all of its main competitors.
The ECB’s announcement regarding its monetary policy left investors dissatisfied. The ECB president Mario Draghi said that the asset purchase programme, also known as Quantitative Easing (QE), will continue to run until the end of December 2017, or beyond, if necessary.
While this was expected, Draghi said that the ECB’s policy won’t change until inflation—which hasn’t shown a convincing trend upwards yet—goes higher. In the language of economists, this means that the ECB’s support is required to keep inflation sustained. Analysts suggest that the Euro to US Dollar rate will have a new peak when the ECB cuts down on its stimulus programme or raises rates from present record lows.
The French GDP grew slower than expected in the first quarter of the year. Data released showed that it expanded by 0.3%, lower than the expected 0.4%, disappointing investors. The French CPI for April met the forecast of 1.4% growth year on year. Consumer spending was slightly better than in March, but missed the target of rising by 1%. Spain’s GDP for the first quarter of 2017 grew by 0.8%, better than the expected 0.7%. Strong gains in employment, improved consumer confidence and growing external demand seem to have been the primary reasons for the good result.
Other Currencies – Highlights
Sterling continued to gain value against the Australian Dollar, rising to 1.73 AUD. Analysts suggest that the Aussie’s poor run will continue to extend into May, which is traditionally a bad month for the Australian Dollar’s exchange rates. On May 9, the Australian Federal Budget will be announced. Standard and Poor’s has repeatedly threatened that it will downgrade Australian economy’s credit rating, if the numbers are not satisfying.
The Pound outperformed the New Zealand Dollar, expanding the rate at 1.88 NZD. The Kiwi continues to be the worst performer among the G10 currencies. New Zealand’s finance minister, Steven Joyce, announced a budget for building infrastructure and plans to cut the government’s net debt target to 15% of GDP by 2025. However, the news didn’t seem to help the exchange rates of the Kiwi.
The Canadian Dollar remained stable against the US Dollar, despite the good news that the US won’t terminate NAFTA. On the contrary, the Pound gained 0.4% against the Canadian currency, and is being exchanged at 1.76 CAD.