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Fri 19 Jul 2024 14:14GMT

British Pound Climbs on UK Retail While Euro Plunges on European Central Bank Caution

Published: 14 Jun at 5 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada,

Pound Sterling (GBP)
The Pound has had a volatile week, as the latest UK data has given investors a mixed idea of whether a potential 2018 interest rate hike from the Bank of England (BoE) is becoming more or less likely.

UK inflation and wage data disappointed investors earlier in the week, but Sterling demand was bolstered by a surprisingly strong UK retail sales report from May on Thursday. This helped the Pound to gain against some major rivals like the Euro.

However, Sterling’s demand against other rivals was limited as the retail report did not indicate that household activity would continue to improve. As a result, Pound investors are now highly anticipating next week’s Bank of England (BoE) policy decision before making further moves on the currency.

Euro (EUR)
Euro investors had spent most of the week anticipating the European Central Bank’s (ECB) June policy decision in the hopes that the bank would confirm its plans to withdraw its quantitative easing (QE) plans by the end of the year.

However, while the bank did indeed confirm it would taper QE the Pound to Euro (GBP/EUR) exchange rate surged following the bank’s decision on Thursday. Its selloff comes as investors digest comments from ECB President Draghi, who warned about economic uncertainties in the Eurozone and the possibility of a global trade war, as well as news that the bank had cut its Eurozone growth forecast.

The Euro could strengthen again in the coming week if Eurozone data shows a surprise improvement. Eurozone confidence on Thursday and Markit’s Eurozone PMI projections on Friday are the most likely to influence the Eurozone’s economic outlook.

US Dollar (USD)
Despite a brief selloff on Wednesday following the Federal Reserve’s latest interest rate hike, the US Dollar saw stronger demand again on Thursday due to Euro (EUR) weakness. This knocked the Pound to US Dollar (GBP/USD) exchange rate to its lowest levels in over a month.

US Dollar demand has been limited as four US interest rate hikes for 2018 are largely priced in already, but weakness in its rival currencies as well as strong US retail data helped the US Dollar to hold gains against the Pound. US retail sales were expected to come in at 0.4% month-on-month but this rate unexpectedly doubled to 0.8.

Next week, the US Dollar’s potential for gains is likely to be limited. If upcoming US housing data or PMI projections beat forecasts though, it could make it more difficult for GBP/USD to recover Thursday’s losses.

Australian Dollar (AUD)
The Pound to Australian Dollar (GBP/AUD) exchange rate has been able to climb this week, but higher demand for high-yielding risky currencies towards the end of the week pushed the pair back down from its best levels.

Thursday’s Australian job market results were disappointing, showing that the participation rate had unexpectedly shrunk and the employment change figure was smaller than forecast. However, the ‘Aussie’ avoided its worst levels after the European Central Bank’s (ECB) dovishness boosted market risk-sentiment.

The Australian Dollar might find stronger domestic support next week if the Reserve Bank of Australia’s (RBA) upcoming meeting minutes or bulletin show any signs of hawkishness. Of course, GBP/AUD could put in further gains if the central bank news is more on the dovish side.

New Zealand Dollar (NZD)
The volatile New Zealand Dollar has kept the Pound to New Zealand Dollar (GBP/NZD) exchange rate fluctuating this week, but the pair has largely trended below the week’s opening levels and could be on track to end the week lower.

Markets have found risky high-yielding currencies like the New Zealand Dollar more appealing since the European Central Bank (ECB) took a cautious stance on Eurozone growth and monetary policy during its June policy decision.

New Zealand Dollar investors are anticipating May’s NZ business PMI on Friday, but next week’s New Zealand growth rate report and current account figures are likely to be even more influential.

Canadian Dollar (CAD)
The Pound to Canadian Dollar exchange rate fluctuated on Thursday as investors digested the European Central Bank’s (ECB) June policy decision.

Ultimately, the Canadian Dollar remained unappealing due to trade jitters revolving around US protectionism and the North American Free Trade Agreement (NAFTA). Canada’s April housing prices results were underwhelming too and didn’t offer the Canadian Dollar any fresh support.

Bank of Canada (BoC) interest rate hike bets are likely to take focus again towards the end of next week, when Canada’s May inflation and April retail sales results will be published. This, as well as any new trade developments, could influence the Canadian Dollar next week.
As of Thursday, 14th June 2018, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1455, GBP USD exchange rate was 1.3269, GBP AUD exchange rate was 1.7751, GBP NZD exchange rate was 1.903, and GBP CAD exchange rate was 1.7387.
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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