Pound – lower after UK growth sees contraction in April
[vc_row][vc_column][vc_column_text]The appeal of the pound weakened in response to April’s UK gross domestic product report, with growth found to have contracted -0.4% on the month.
As companies moved to protect themselves from a potential no-deal Brexit in April this naturally limited production growth and business investment, leading the economy to its worst monthly performance in three years.
However, with the quarterly growth trend still in positive territory the impact of the negative data ultimately proved limited, sparing GBP exchange rates from another sharp decline.
Although the Bank of England (BoE) continued to point towards the prospect of a 2019 interest rate hike last week, though, this was not enough to prevent the pound losing ground against its rivals.
The mood towards the pound could sour further on Tuesday, however, if April’s average weekly earnings data fails to impress.
Markets anticipate a fresh loss of momentum in domestic wage growth, adding to worries surrounding the recent uptick in inflationary pressure.
If household finances look set to take another hit at the start of the second quarter this could erode confidence in the wider economic outlook, to the detriment of GBP exchange rates.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]
Easing Eurozone inflation limits euro appeal
As the Eurozone consumer price index fell short of forecast in May, showing a sharper slowdown than anticipated, this left the euro on a weaker footing.
While markets had anticipated a decline in the Eurozone inflation rate following April’s sharp uptick the decline from 1.7% to 1.2% still weighed on EUR exchange rates.
Coupled with the latest dovish signals from European Central Bank (ECB) policymakers this drove up the odds of interest rates remaining on hold for the foreseeable future, or even seeing a fresh cut.
Another sharp monthly decline in German industrial production added to concerns over the outlook of the Eurozone’s powerhouse economy, meanwhile, as trade tensions continued to restrict growth.
As long as the risk of fresh US tariffs remain the German economy may struggle to recover its lost momentum, limiting the potential for euro gains.
Fresh comments from ECB President Mario Draghi could put additional pressure on EUR exchange rates this week, especially if he raises the potential of an interest rate cut.
If Eurozone industrial production also sees a decline the single currency is likely to remain biased to the downside, even if anxiety over the Italian budget debate eases.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]
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* Information courtesy of Currencies Direct, Philip McHugh
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)
The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information. This article was written by Currencies Direct.
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