This morning UK GDP figures were released and were expected to come in at +0.3% and they came in just below at 0.2%. As the figure didn’t impress or beat forecasts it has sent the Pound a little lower this morning. It’s the continuation of the recent trend as the Pound has been weakening of late for several reasons. The conservatives lead in the polls has narrowed so political uncertainty has been pushing the Pound lower.
Also, as soon as the election is over on the 8th of June, all focus will shift to the Brexit negotiations. In the short term I think this will be negative for the Pound, especially while the ‘divorce bill’ that the UK will have to pay is agreed. I think that ultimately a good trade deal will be agreed and the Pound will bounce back to better levels, but this isn’t likely until the end of 2017, and the short term forecast for the Pound is for it to weaken as negotiations begin.
GBP/USD rates have risen back to $1.30, the highest in 8 months. It’s due to a weaker USD as last night the US Federal reserve released the minutes to their latest interest rate decision. This shows that they talked about holding off raising interest rates until it’s clear the economic slowdown is over.
The fact that rates may not now be pushed up in June weakened the USD and made it cheaper to purchase.
As investors sold the USD they moved to the Euro, and that caused the single currency to strengthen, pulling GBP/EUR rates lower. We often see an inverse correlation between GBP/EUR and GBP/USD, and this is clear to see in the graphs where you can see Pound/Euro dropping as Pound/Dollar rises.
The other reason for the fall in GBP/EUR rates is the fact the Euro is strengthening in general. Sooner or later the European Central Bank will end its stimulus programme and raise interest rates, and the more likely this is, the stronger the Euro will get, potentially pushing GBP/EUR even lower in the coming months.