The Pound Sterling to Euro (GBP/EUR) and Pound Sterling to US Dollar (GBP/USD) exchange rates both climbed in Thursday’s European session as all eyes were focused on the situation between Greece and its creditors as the Eurogroup meeting took place in Luxembourg. Additionally, US inflation figures came in below forecast, causing the US Dollar (USD) to slip.
US Inflation Misses Forecasts – US Dollar (USD) Exchange Rate Softer
The US Consumer Price Index (CPI) managed to escape deflation in May, climbing from -0.2% to 0.0% on the year. It fell slightly short of expectations for 0.1% growth. Additionally, the core inflation measure slipped surprisingly further away from the Federal Reserve’s 2.0% inflation target, from 1.8% to 1.7%.
Wednesday did little to boost the US Dollar (USD) exchange rate when the Federal Reserve announced it was revising its growth forecasts lower and Chairwoman Janet Yellen stated she wanted to tread with caution when it came to adjusting interest rates.
Danske Bank Forecasts Two Federal Reserve Rate Hikes this Year
Danske Bank commented: ‘Overall, the sum of information leaves us with the impression that upcoming data will need to surprise in the upside compared to Yellen’s expectations to get a first hike in September. While our current GDP [Gross Domestic Product] growth forecast for 2015 is in line with the FOMC [Federal Open Market Committee] projection, we believe that the unemployment rate will drop faster than the Fed is projecting and we also see wage inflation picking up pace in the second half of the year. In particular the latter is in our view likely to put a September rate hike back on the table and we continue to see two rate hikes this year as the most likely outcome but it is a close call.’
Any hawkish remarks from the US Federal Reserve or any speculation of a September rate hike could cause the US Dollar to Euro (USD/EUR) and US Dollar to Pound Sterling (USD/GBP) exchange rates to climb.
The US Dollar to Pound Sterling (USD/GBP) exchange rate is trending at 0.6289.
Euro (EUR) Exchange Rate to Drop as Greek Deal Prospects Slowly Ebb Away
The Euro (EUR) exchange rate was fluctuating on Thursday as the Eurogroup meeting took place in Luxembourg. Many officials are remaining optimistic about the situation, but with little agreed on after the past five months of negotiating, it’s hard to see a deal coming into place now.
Slovakia’s finance minister Peter Kazimir commented: ‘We have wasted a lot of time. But I do believe in miracles – I’m catholic, so I have to believe in miracles.’
That statement fills you with hope, doesn’t it?
Greece has stated that it isn’t willing to make its International Monetary Fund (IMF) debt repayments if it hasn’t secured a deal in June, while the IMF states it won’t extend Greece’s deadline past the 30th.
Surprisingly, the usually very buoyant Greek finance minister Yanis Varoufakis has stated he doesn’t believe that a deal will be made at Thursday’s Eurogroup meeting—a summit which has been deemed a last-ditch attempt.
The Euro to Pound Sterling (EUR/GBP) exchange rate is trending in the region of 0.7174.
Pound Sterling (GBP) Exchange Rate Forecast to Climb as Investors Price in BoE Rate Hike on Upbeat Labour Market and Wage Data
The Pound was offered a great amount of support on Wednesday when the UK’s wage growth ecostat jumped higher than forecast. The UK’s Average Weekly Earnings both including and excluding bonuses jumped from 2.3% to 2.7% in April.
Additionally, the UK’s Retail Sales stat was able to remain stable at 4.6% on the year rather than dipping to 4.3% in May. Economists had expected a -0.2% contraction in the month of May, when in actual fact the ecostat came in at 0.2%.
Favourable data (especially UK labour market and wage growth figures) are helping to bolster the Pound (GBP) as investors’ price in the possibility of a Bank of England (BoE) interest rate hike.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is trending at 1.5902.
The Pound Sterling to Euro (GBP/EUR) exchange rate is trending at 1.3946.