Exchange Rate News Today: GBP Gains, EUR Bearish and USD Bullish
Pound Sterling (GBP)
The British economy is now 0.2% bigger than its pre-crisis peak following an upgrade to second quarter Gross Domestic Product (GDP) from the Office for National Statistics (ONS). Annualised second quarter growth was revised and changed from 3.1% to a 6-year high of 3.2%, whilst quarterly growth was confirmed at 0.8%. The sturdy score was bolstered by Britain’s dominant service sector which showed an expansion of 1.0%, but construction output remained unchanged at 0.0%.
The data suggests that the economic revival is being fuelled by domestic demand. This is as a result of the Eurozone’s persistent lack of meaningful growth and therefore future GDP expansion is likely to be limited.
Despite the better-than-expected GDP report the Pound barely moved in response. This was primarily because trader focus was still dominated by the Bank of England’s (BoE) dovish outlook on interest rate. However, demand for Sterling increased when markets reopened from the weekend on Monday in response to a statement from BoE Governor Mark Carney who intimated that wage growth might not have to overtake inflation before the benchmark interest rate is raised.
If you're looking to make an international money transfer, we recommend TorFX.
With growing concern that British borrowing costs may remain at record lows until next February, or possibly even next May; investors pulled out of Sterling positions sinking the Pound by around a third of a cent against the single currency.
However, Sterling appreciation against the Euro in the medium term is increasingly likely with British quarterly growth coming in at 0.8% and Eurozone GDP printing a dismal flat line figure.
Perhaps the most significant threats to the Eurozone are the rampant youth unemployment levels, low consumer price inflation and the Russian threat of cutting Europe’s oil supply. The possibility that the European Central Bank (ECB) will react to these hazards by introducing a quantitative easing scheme is likely to dampen demand for the Euro.
US Dollar (USD)
Sterling fell for the sixth consecutive week against the US Dollar as the exchange rate remained below psychological support levels on Friday. The GBP/USD exchange rate hasn’t suffered a losing streak for this length of time since 2010 when Sterling sunk to its lowest level for over two decades.
American domestic data was generally positive last week; manufacturing production came in at 1.0% which rose considerably from the forecast figure of 0.4%. The strong US data could open the door further to Sterling losses, but the very fact that ‘Cable’ (GBP/USD) has fallen for six consecutive weeks may encourage markets to take profit and push the Pound a little higher over the coming days.
Canadian Dollar (CAD)
In response to a large revision to Canadian unemployment data the ‘Loonie’ (CAD) rallied against Sterling on Friday.
Statistics Canada originally reported that only 200 jobs had been created during July, but Friday’s positive revision saw a dramatic increase to 42,000 following the rectification of a human error in the accounting process. The upgrade to the jobs figure drove the unemployment rate down from 7.1% to 7.0% which caused the Canadian Dollar to garner support against most of the majors.
Australian Dollar (AUD)
The Pound gained slightly against the Australian Dollar on Friday afternoon following trader reaction to the strong US manufacturing numbers, which were seen to increase the likelihood of an interest rate hike from the Federal Reserve. The impact of the figures was short-lived, however.
New Zealand Dollar (NZD)
The Pound to New Zealand Dollar exchange rate remained fairly flat on Friday as markets digested the latest UK GDP numbers. Traders appear unwilling to send the Pound higher until there is definite evidence of upward inflationary pressure on British wages, which is not helped by BoE policymakers’ seemingly comfortable with the current level of economic growth.
South African Rand (ZAR)
The Pound to South African Rand exchange rate is currently soft as BoE interest rate uncertainty holds back Sterling.
With the miners’ strike situation easing the Rand has held steady against many of its major peers. As the markets digest the revision to the second quarter UK GDP however, expect the Pound to strengthen against the South African Rand.