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Hopes for Rising UK Consumer Optimism Helps British Pound (GBP) Recover from Lows

Published: 19 Apr at 3 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada,

Pound Sterling (GBP)
Despite some disappointing UK retail sales results on Thursday following Wednesday’s surprising slowdown in UK inflation, the Pound was able to hold above its worst levels against most major currency rivals during Thursday trade.

General market optimism that the long-lasting UK pay squeeze was finally easing due to slowing inflation and rising wage growth gave investors hope that UK consumer activity would strengthen too. This offset concerns about March’s disappointing retail sales results, which were largely caused by surprisingly stormy weather throughout that month.

Still, the Pound outlook has worsened due to the surprise drop in UK inflation and investors are now highly anticipating further signals from the Bank of England (BoE) on its plans for UK monetary policy in May and beyond. Speeches from BoE officials could drive Sterling movement for the rest of the week.

Euro (EUR)
After touching its worst levels in a week on Thursday morning, the Pound to Euro exchange rate recovered slightly towards the end of the session. Sterling was able to more easily recover against a weak Euro, but the pair still remained below the week’s opening levels.

The Euro was little affected by Thursday’s Eurozone stats, but Wednesday’s underwhelming Eurozone inflation results continued to weigh on the shared currency. Expectations that the European Central Bank (ECB) will remain cautious on monetary policy well into 2019 left the Euro unappealing.

Friday will see the publication of the Eurozone’s April consumer confidence projections, but next week’s ECB policy decision is likely to become a focus in Euro trade over the coming sessions.

US Dollar (USD)
The Pound to US Dollar exchange rate saw similar movement to GBP/EUR on Thursday, as the pair hit its lowest levels in a week before climbing a little closer to the week’s opening levels again.

The US Dollar was unable to hold its best levels against the Pound, as investors reassessed Wednesday’s sharp Sterling selloff. The US Dollar was also dented slightly by news that US jobless claims were slightly higher than expected in the latest print.

Broad weakness in the US Dollar has been due to geopolitical uncertainties and mixed Federal Reserve interest rate hike bets. As a result, the US Dollar could strengthen if any upcoming Fed speeches are perceived as hawkish.

Australian Dollar (AUD)
The Pound to Australian Dollar hit its lowest level in about a month on Thursday morning, before rebounding from its lows towards the end of the day.

Demand for the Pound improved thanks to hopes for UK consumer confidence to improve, while the Australian Dollar was pressured by an underwhelming Australian job market report overnight. The employment change figure only came in at 4.9k, below the expected 21k.

Next week will see the publication of Australia’s Q1 2018 Consumer Price Index (CPI) results. If Australian inflation beats expectations, it could boost market speculation of a more hawkish Reserve Bank of Australia (RBA) and would also strengthen demand for the ‘Aussie’.

New Zealand Dollar (NZD)
Broad New Zealand Dollar weakness this week has made it easier for the Pound to New Zealand Dollar exchange rate to advance, despite disappointing UK inflation stats causing a brief Pound selloff on Wednesday.

GBP/NZD neared its weekly highs again on Thursday afternoon, despite Wednesday’s fall. The New Zealand Dollar has been unappealing due to New Zealand’s Q1 inflation results, which were highly unsurprising and left markets doubtful that the Reserve Bank of New Zealand (RBNZ) would take a more hawkish stance on monetary policy any time soon.

Next week’s New Zealand data includes trade and consumer confidence data, but as these are unlikely to be notably influential the New Zealand Dollar is more likely to be driven by shifts in risk-sentiment.

Canadian Dollar (CAD)
Both the Pound and Canadian Dollar weakened on Wednesday due to a bearish shift in central bank speculation. UK inflation data lowered Bank of England (BoE) interest rate hike bets, while the Bank of Canada’s (BoC) April policy decision was more dovish than expected and dampened BoC interest rate hike bets.

The bank remained highly cautious about how trade protectionism could damage Canada’s economy and neglected to signal how soon its next interest rate hike would be. This left the Canadian Dollar unappealing and GBP/CAD recovered from its weekly lows.

Still, the Canadian Dollar could strengthen again if Friday’s major Canadian data impresses investors. Canadian inflation and retail sales will be published and could boost BoC interest rate hike bets if they beat expectations.
As of Thursday, 19th April 2018, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1407, GBP USD exchange rate was 1.4081, GBP AUD exchange rate was 1.8231, GBP NZD exchange rate was 1.9383, and GBP CAD exchange rate was 1.7833.
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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