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Euro Volatile in Anticipation of ECB Policy Meeting, New Zealand Dollar Weakened by Damp OECD Growth Forecast

Published: 2 Jun at 11 AM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada,

Pound Sterling
Although the outlook of the UK economy seems to remain mixed at best this did not prevent the Pound from regaining ground against many of its rivals on Thursday morning. Despite the latest Construction PMI showing a dip in sector growth from 52.0 to 51.2 this was not enough to keep Sterling on a downtrend. Following the sharp slump seen in the wake of earlier ‘Brexit’ polls the softened currency benefitted from a renewed bout of investor confidence. However, if tomorrow’s Services PMI falls short of forecast then the Pound is likely to return to a weaker footing ahead of the weekend.

Confidence in the single currency was muted ahead of the European Central Bank’s (ECB) latest policy meeting. This was despite expectations that policymakers will make no particular changes at this juncture, instead opting to maintain a ‘wait and see’ mentality for the time being. The appeal of the Euro was also diminished by a weaker-than-expected Eurozone Producer Price Index report, which pointed towards continued inflationary weakness within the currency union. Should ECB President Mario Draghi adopt a less dovish tone on monetary policy, though, the common currency could rally later today.

US Dollar
In spite of a hawkish Federal Reserve Beige Book investors remained largely reluctant to buy into the ‘Greenback’, displaying cautiousness ahead of Friday’s potentially pivotal Non-Farm Payrolls report. The Beige Book seemed to suggest that the US has reached full employment, a bullish signal that could well prompt the Fed to begin tightening monetary policy again imminently. Nevertheless, if the May payrolls indicate weaker wage growth then the US Dollar could retreat thanks to continued doubt over the chances of a June interest rate hike.

Australian Dollar
Weakened risk appetite helped to erode some of the strength of the ‘Aussie’, with markets inclined to move away from the higher-risk asset amid speculation on the odds of a Fed rate hike. The outlook of the Australian economy seemed a little brighter following the latest trade balance report, as the domestic trade deficit narrowed further than expected in April. But the bullishness of this data was overshadowed by a marked decline in Retail Sales, which pointed towards continued weakness within the economy. A weaker Australian Services PMI could see the antipodean currency soften further ahead of the weekend.

New Zealand Dollar
While dairy prices ticked higher at yesterday’s GlobalDairyTrade auction this failed to offer particular support to the ‘Kiwi’. Sentiment was dampened by the latest Organisation for Economic Co-operation and Development (OECD) forecast for the New Zealand economy, which suggested that domestic growth is likely to slow in the coming year thanks in part to a negative dairy industry outlook. If tonight’s ANZ Commodity Price Index demonstrates fresh weakness then the New Zealand Dollar is likely to retreat further against rivals on Friday.

Canadian Dollar
The ‘Loonie’ was on mixed form as markets focused on the latest OPEC meeting in Vienna, where there was speculation that producers could consider reinstating a production ceiling for members. However with Iran steadfastly against imposing limitations on its output the likelihood of an agreement seems slim, particularly with Brent crude trending in the region of US$50 per barrel. As concerns have also been mounting over the prospects of the Canadian economy there consequently remains little particular reason to favour the Canadian Dollar.
As of Thursday, 2nd June 2016, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.2923, GBP USD exchange rate was 1.4413, GBP AUD exchange rate was 1.9956, GBP NZD exchange rate was 2.1177, and GBP CAD exchange rate was 1.8887.
Dominic Lee About Author: (474 Posts)With over ten years experience as an economist – including four years spent as a chief economist with a major currency broker – Dominic has acquired a wealth of knowledge which he uses to forecast market movements. Dominic now works as an independent business advisor and writes for several financial publications.

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