British Pound to Euro (GBP/EUR) and US Dollar (GBP/USD) Exchange Rates Remain Bullish
The British Pound is currently bullish in the currency market, trading at 1.7144 against the ‘Buck’ with data evidencing economic growth and stability.
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The US Dollar has been subject to weak US figures and the lack of prospect for interest rate hikes in the near future, whilst the Euro sits precariously amid mixed statistics.
This week started off strongly for the Pound, with House Price data exceeding expectations on Wednesday climbing to 11.8% from the previous 11.1% YoY; the rise was unexpected as economists had only forecast slight gains to 11.2%.
However the more considerable data for the Pound’s stability came in the form of Construction PMI, which defied forecasts to fall and instead rose above predictions on Tuesday.
The economists’ forecasts were a dip from the previous 60 to 59.8. Instead the figure rose considerably to 62.6, fuelling talks of interest rate hikes by the close of 2014 into a prominent position among economists once again.
Economist Martin Beck argues that the growth of the UK economy will begin to gather speed, he stated: ‘Growth may have picked up pace in Q2. We expect a quarterly expansion of around 1%, which would be the highest rate since 2007.’
However, Thursday has seen slightly disappointing figures for the Pound as Composite and Services PMI have fallen below expectations.
Composite PMI was forecast to fall from 59 to 58.6 in June, however, the figures revealed showed a drop past the economists’ predictions to 58.
Moreover, the drop in Services PMI was only forecast to dip from 58.6 to 58.3 but instead the UK published a disappointing figure of 57.7.
With no more significant data for the UK released this week, the Pound will be reliant on other economies performances to determine if it can remain strong.
The US has a heavy data day Thursday ahead of 4th July celebrations, commencing at 13:30 GMT starting with Change in Non-farm Payrolls figures, which if favourable could bode well for the ‘Greenback’.
The Eurozone also has a heavy latter half of the week by way of data publishing. The Eurozone has been subject to publishing mixed results and Thursday has seen a continuation of this recent diversity.
Italian data exceeded expectations with Composite PMI seeing a productive rise from 52.7 to 54.2, whilst the Italian Services PMI also rose to 53.9 in June up from May’s 51.6; despite predictions of a gentle rise to 52.0.
French Composite PMI also had a soft rise from 48.0 to 48.1 whilst Services PMI fell from 49.1 to 48.2.
German PMI fell further than initially forecast however, proving another weak point for the Euro; not facilitated by the additionally poor Eurozone Retail Sales statistics which fell from 1.8% to 0.7% YoY.
Friday will see the Eurozone dominating the data arena with German Factory Orders, German Construction PMI and French, German, Italian and Eurozone Retail PMI publishing.
With the US Dollar trading at record lows in recent weeks, there has been much speculation about how the Federal Reserve will boost the US Dollar.
Federal Reserve Chairwoman Janet Yellen yesterday commented on her priority to prevent economic disaster and maintain a stable economy, which in the near future doesn’t include raising interest rates.
Yellen instead believes that interest rate rises are a weaker substitute in the face of careful regulation and supervision.
Yellen stated: ‘Monetary policy faces significant limitations as a tool to promote financial stability.’
With the US looking to keep interest rates low for some time, the ‘Buck’ may not be able to regain much strength against the thriving Pound.
However, there is hope on the horizon for a stronger ‘Greenback’ by the close of 2014.
Forex expert for UBS Macro Research, Mansoon Mohi-uddin stated: ‘Our end-year forecasts for the Dollar to rise to $1.25 against the Euro and ¥110 against the Yen are predicted on the Fed finishing quantitative easing and investors starting to anticipate higher Fed interest rates in 2015.’
With faith that the US economy could be on a slow course to recovery, the latter half of 2014 will prove an interesting time for the US Dollar.
Barclays representative Aroop Chatterjee suggested: ‘Our bullish Dollar and higher US rate views are built on a continuing economic recovery, tightening labour markets and a significant rise in inflation versus Fed forecasts. We believe the Fed is likely to tighten faster beyond 2015 than markets expect and the gap between market pricing and Fed rate projections is likely to narrow.’
The British Pound is currently trading at 1.7144 against the ‘Buck’ and 1.2559 against the Euro and looks steady in its bullish nature for the near future.