GBP Euro Exchange Rate Falls Into Election Day

By Pete Southern in Currency Articles | May 7, 2015 10:49 |

British second quarter growth prospects were given a massive boost yesterday when Markit Economics announced that the dominant UK service sector performed at its strongest level for eight months in April. Smashing expectations of 58.5, the PMI printed at an impressive 59.5 as a surge in new business caused firms to continue hiring at a rapid pace. Because the tertiary sector accounts for around 75% of total economic output, analysts predict that Britain could be on course for GDP growth of around 0.8% in the second quarter – even though manufacturing and construction output decelerated.

However, with UK general election concerns at the forefront of traders’ minds, Sterling was only able to appreciate against the US Dollar when the robust service sector score was announced.

Euro

The Pound to Euro exchange rate sunk by around a cent yesterday as markets reacted positively to some sturdy private sector data out of the currency bloc. The Spanish service sector PMI surpassed 60.0 last month for the first time in 101 months and Italian output rose to a 10-month high of 53.9, which along with a robust German print of 54.1 helped boost demand for the single currency.

Traders were also cheered by news of a €200 million Greek payment to the IMF and by speculation that the ECB is prepared to increase emergency liquidity assistance to the Hellenic nation by a further €2 billion. It is unclear whether Greek finance minister Yanis Varoufakis’ father’s remark that ‘every woman in Greece and Europe’ loves his son had any impact on the state of the common currency.

US Dollar

Sterling rallied by around half a cent against the US Dollar yesterday on the back of the morning’s impressive UK service sector report, which allayed fears that the British economy could be cooling at the start of 2015.

In addition to the upbeat data out of the UK, GBP/USD benefitted from a below forecast US ADP employment score of 165,000, which was seen by some to suggest that the American labour market underperformed in April. If Friday’s key non-farm payrolls report also prints softly then it could seriously hamper Federal Reserve rate hike bets and subsequently decrease demand for the ‘Greenback’.

Fed Chairwoman Janet Yellen’s afternoon warning that equity markets could be overvalued did little to lift economic sentiment.

Canadian Dollar

The Sterling to Canadian Dollar exchange rate remained flat on the day yesterday as strong UK service sector data equalled out another rise in the value of Canada’s most lucrative export, crude oil.

With Britain mired in political uncertainty ahead of today’s general election, demand for Sterling has remained relatively weak as of late. And with 44 years of Conservative rule, political uncertainty has not played a significant role in determining the value of the ‘Loonie’. However, this could be about to change. The left-wing Canadian New Democratic Party won a surprise victory in Alberta yesterday, raising the prospect of political change and the uncertainty that comes with it. This had a mildly negative impact on the ‘Loonie’.

Australian Dollar

As traders continued to digest the Reserve Bank of Australia’s decision to cut rates, and ditch talk of cutting rates further in the future, the ‘Aussie’ Dollar continued to fluctuate on the currency markets. GBP/AUD weakened during the morning but recovered during the evening in anticipation of key labour market data.

New Zealand Dollar

The New Zealand Dollar softened by over two cents against the Pound when data showed that unemployment remained at 5.8% in the first quarter, which disappointed economists’ forecasts of a fall to 5.5%. Wage growth also underwhelmed, which caused traders to speculate that the Reserve Bank of New Zealand could cut rates later on in the year.

Pete Southern About Pete Southern
Pete Southern is an active trader, chartist and writer for market blogs. He is currently technical analysis contributor and admin at this here blog.



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