Pound Sterling Rebound v Dollar and Euro to be Tested by UK GDP Release

  • Quotes at time of writing
  • Pound to Euro exchange rate: 1.1190
  • Pound to Dollar exchange rate: 1.3024

The British Pound is failing to convince us that it is ready to deliver a shot of meaningful upside at present; but could the release of the week’s most important economic data due out at 09:30 shift sentiment towards Sterling?

UK growth data for the second-quarter of 2017 is the day’s highlight for Sterling and markets will be looking for confirmation that the soft start to the year was overturned in the second-quarter.

A poll of economists show they are forecasting a 0.3% increase, a tick above the first quarter’s anaemic rate of 0.2%.

The risk is that the data beats expectations which could see Sterling jump.

A disappointment will only add to the subdued tone in Sterling but there is a great deal of negative news already priced into the Pound exchange rate complex so it’s hard to see a major decline occurring.

Recent data has been positive, albeit second-tier in nature. The CBI reported earlier in the day that production among UK manufacturers grew at the fastest pace since January 1995 in the three months to July.

According to the latest quarterly CBI Industrial Trends Survey, employee headcount increased at the fastest rate for three years and that hiring intentions for the coming quarter also improved.

The news is evidence that the UK economy might be seeing its manufacturing sector picking up some of the economic slack being left behind in the wake of slowing consumer activity.

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Sterling’s Rebound ‘Technical’ in Nature

Yes, downside pressures have eased ahead of the mid-week session but the strength is hardly convincing and lends support to the idea that the currency is playing second-fiddle to its major trading partners.

For instance, the Euro is taking a breather from its frantic run higher, while the US Dollar sits in anticipation of the US Federal Reserve meeting on Wednesday.

“Sterling staged a technical rebound against the Dollar and the Euro,” says Piet Lammens, a foreign exchange analyst with KBC Markets in Brussels who describes the move as insignificant.

Meanwhile analysts at Deutsche Bank have told clients it is their “house view” that the Euro is likely to appreciate a further 5% against the Pound.

“We turned more positive on Euro,” say Deutsche Bank in a publication released July 25. “Limit to Sterling downside vs. Dollar as BoE uncomfortable with weak Pound. But currency uniquely exposed to earlier / faster ECB tightening − G10’s largest current account deficit, lowest real rates.”

 

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