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Currency Forecast: GBP Bearish, EUR Plummets and USD Steady

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Sterling (GBP)

Yesterday was a dark day for the Pound. Sterling plummeted across the board following less than satisfactory UK labour market data, which showed that average weekly earnings fell by -0.2% in the second quarter. If the poor wage data wasn’t enough; the fire was well and truly stoked after the release of the Bank of England (BoE) Inflation Report.  BoE Governor Mark Carney intimated that the bank would be paying much closer attention to fluctuations in wage growth. The BoE halved its forecast wage growth for 2014 from 2.50% to 1.25%, and it is now thought that interest rates will not be hiked before February 2015.

The unemployment rate fell to 6.4%, a fresh 6-year low, and the BoE predicted that unemployment will continue to decrease with similar rapidity. This positive result was somewhat overshadowed, however, and made little impact to improve Sterling and curtail the steep declines across the board.

Euro (EUR)

Predictably the Pound to Euro exchange rate suffered a 1-cent daily decline yesterday following the negative UK labour market data. Interest rates are unlikely to rise in the second half of this year as the BoE alters its focus from unemployment to wage growth.

In the Eurozone industrial production data was seen to have flat-lined in June, compared to expectations of a 0.2% rise.

This morning has seen an unhappy set of domestic data for the Eurozone’s major economies. The French and German Gross Domestic Product (GDP) results both contracted, and saw a significant loss from forecast figures. Eurozone GDP results have not been published as yet, but expect the results to emulate that of the France and Germany.

US Dollar (USD)

The Sterling to US Dollar exchange rate sunk lower by around 1.3 cents yesterday as traders digested the weak UK domestic data. This brought ‘Cable’ (GBP/USD) below significant support levels at 1.67; opening up the very real possibility of further losses. The Pound was at its lowest level in 10 years against the ‘Greenback’ (USD) and extending the deficit is a very real prospect.

US retail sales data was forecast at 0.2% but the actual data was a disappointing 0.0%. The result had little impact however, as UK issues dominated trader reaction whilst they were forced to push back their rate hike speculations in light of the Bank of England’s dovish quarterly Inflation Report.

Canadian Dollar (CAD)

Sterling’s losses across the board were felt in the Sterling to Canadian Dollar exchange rate which fell by around -1.3 cents as traders focussed on the disappointing UK average earnings data.

The ‘Loonie’ (CAD) was bolstered yesterday by the news of a revision to Friday’s underwhelming jobs data. Statistics Canada announced that a review had been launched after an error had been detected in July’s employment report. The initial data showed that only 200 new jobs had been created, which was far lower than the median market forecast of 15,000. The Canadian Dollar dipped by around a cent as a result, which suggests the strength of the ‘Loonie’ could be boosted if the revision proves positive.

Australian Dollar (AUD)

Yesterday the Pound to Australian Dollar exchange rate declined by around 2 cents to a 2-month low. This is a clear reaction by traders across the globe to the faltering UK wage data, dampening bets of a BoE rate hiking cycle beginning before the close of the year.

New Zealand Dollar (NZD)

Unsurprisingly the Pound to ‘Kiwi’ (NZD) exchange rate emulated all of the pairings with Sterling as the base. What was more surprising is the extent; a declination of -2.5 cents.

A stronger-than-anticipated New Zealand retail sales report, which showed a sales gain of 1.2% (over the forecast figure of 1.0%) helped to buoy the ‘Kiwi’ and accounted for half a cent of the gain against the Pound.

South African Rand (ZAR)

The Pound to South African Rand exchange rate declined significantly following the dovish BoE quarterly inflation report.

Despite posting less-than-ideal retail sales data yesterday, which was 2.2% lower than forecast, the GBP/ZAR exchange rate was little affected given the overwhelming negative reaction to UK wage growth, or lack thereof.

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