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Mon 6 Jul 2020 05:49GMT

British Pound (GBP) Fails to Hold Highs Versus Majors as UK Construction Disappoints

Published: 4 Apr at 5 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, China,

Pound Sterling (GBP)
Demand for the Pound was mixed during Wednesday’s European session, as the latest UK construction data was surprisingly dovish and weighed on the rally the British currency had begun this week.

Markit’s March construction PMI was forecast to have slipped from 51.4 to weak growth of 50.9. Instead however, the figure printed below the 50.0 point separating growth and contraction and came in with a surprising contraction of 47.0. This was the first contraction in the print for six months and worsened market concerns that Britain’s economy was not as strong as expected in early 2018.

As the data weighed on Sterling appeal, investors looked ahead to Thursday’s session when the key UK services PMI from March will be published. Services make up a notable chunk of UK economic activity, so if this data surprises it could influence the UK economic outlook and the Pound.

Euro (EUR)
The Pound to Euro exchange rate fluctuated on Wednesday, as both currencies were weakened by domestic news. Sterling was held back from its weekly highs by weak UK construction data while the Euro’s recovery was limited by modest Eurozone inflation projections.

The Eurozone’s Wednesday data was decent overall, as the March inflation rate is projected to have risen from 1.1% to 1.4% as expected. However, the projection simply meeting expectations didn’t give investors any fresh reasons to buy the Euro either. Eurozone unemployment improved from 8.6% to 8.5% as forecast.

Thursday’s Eurozone composite PMIs and retail sales stats could influence some late-week Euro movement, but GBP/EUR could easily see further gains if UK services stats impress.

US Dollar (USD)
The US Dollar has seen wide fluctuations this week, due to market uncertainty about whether or not a ‘trade war’ between the US and China is becoming more likely. Both nations introduced new tariffs over the last day, with China’s strong tariffs on imports of major US products like soybeans surprising investors most.

Investors have been hesitant to buy the US Dollar on concerns the tensions could worsen, but its losses have been limited by speculation that the back and forth is more likely to end in negotiations than a ‘trade war’.

Slightly weaker-than-expected non-manufacturing PMI data from ISM weighed on the US Dollar slightly too, but in terms of data investors are more highly anticipating Friday’s US Non-Farm Payroll report.

Australian Dollar (AUD)
Due to mixed market perception on the chances of a US-China ‘trade war’ becoming reality, risky trade-correlated currencies like the Australian Dollar have seen mixed demand. This has caused the Pound to Australian Dollar exchange rate to fluctuate.

The Australian Dollar avoided losses against the Pound thanks to some solid Australian retail sales stats. Australian retail sales beat 0.3% forecasts and came in at 0.6%, while the previous figure was revised higher to 0.2%. This indicated to markets that Australia’s subdued household spending habits were rebounding and made the Australian Dollar more appealing.

Australian services data and trade balance results will be published during Thursday’s Asian session and could influence some late-week AUD movement. However, the biggest focus is likely to continue to be US trade developments.

New Zealand Dollar (NZD)
Despite concerns about the possibility of a US-China ‘trade war’, the Pound to New Zealand Dollar exchange rate tumbled on Wednesday morning and briefly touched on its lowest levels in half a month.

Weak dairy price data was not enough to weigh on the New Zealand Dollar, which was bolstered by rising consumer confidence as it rebounded from its recent lows against major rivals like the Pound.

New Zealand’s economic calendar will be a little quieter in the coming week, but business confidence on Tuesday and business PMI data next Friday could influence the New Zealand Dollar, as well as of course any developments in US trade news.

Canadian Dollar (CAD)
After falling on Tuesday night on hopes of success in North American Free Trade Agreement (NAFTA) negotiations, the Pound to Canadian Dollar recovered slightly on Wednesday afternoon.

Investors have had little reason to continue buying the Canadian Dollar amid a lack of supportive Canadian data, and investors are becoming more anxious again that a ‘trade war’ could break out between the US and China as both nations ramp up trade tariffs against one another.

Canadian Dollar investors are highly anticipating Canada’s job market results due on Friday, but trade balance data due tomorrow could also influence GBP/CAD.
As of Wednesday, 4th April 2018, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1467, GBP USD exchange rate was 1.4087, GBP AUD exchange rate was 1.8233, GBP NZD exchange rate was 1.9252, GBP CAD exchange rate was 1.7975, and GBP CNY exchange rate was 8.8823.
Dominic Lee About Author: (420 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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