British Pound (GBP) Exchange Rate Face Bright Outlook as UK's Economy Rebalances

By Will Peters

The British pound (GBP) exchange rate outlook remains bright as the first data release of the month of May comes in above expectations.

The UK manufacturing PMI figure read at 57.3, ahead of predictions for 55.4. The GBP exchange rate complex spiked higher in the immediate aftermath of the release:

Pound to Euro exchange rate:1.1969
Pound to US dollar: 1.2565
Pound to Australian dollar: 1.9432
Pound to Canadian dollar rate: 1.77
Pound to New Zealand dollar rate: 2.156
Pound to South African Rand rate: 22.8623

Please keep in mind that these quotes are indicative and your bank will create a wide spread on the rate when delivering you foreign exchange. However, an independent FX provider will guarantee to deliver you a tighter spread, thereby delivering more currency. Find out more.

The next big test for the GBP arrives when markets return from a long weekend away. Services PMI is due on Tuesday, as this is the largest component of the UK economy it will likely have the biggest impact on the currency.

Boosting sentiment in the UK unit this past week were money supply numbers, Net Lending to Individuals (MoM) (Mar) which came in at £2.9B, ahead of expectations for £2.3B.

Consumer Credit (Mar) read at £1.13B, ahead of forecasts for £0.600B. This is a massive increase. However, pound sterling gains will be tempered by news that Mortgage Approvals (Mar) came in below expectations at 67.135, expectations were for 71.050M.

Gains are being seen against the US dollar after US GDP disappointed while under-performing data in Canada is seeing CAD weakness creep back into the markets.

What does the outlook for the British pound hold?

The event calendar kicks off on Thursday with the first in the monthly PMI series. Any improvements on the expected figures will likely boost the UK currency.

Next up are the Construction and then the Services PMI releases.

The UK economy remains in robust health with quarterly growth of 0.8% being reported yesterday.

"Tomorrow’s manufacturing PMI for April will provide an insight to activity in Q2, but with little on the domestic calendar today, both GBP/USD and EUR/GBP will be dominated by key releases from the US and Euro Area. Downside risks to Eurozone CPI suggest potential for a down move in EUR/GBP, the 0.8180/90 area may provide some initial support ahead of the year’s low of 0.8158," say Lloyds Bank Research in a morning currency brief.

One more reason to be bullish on GBP

We have had some second-tier data already today.

Data released front UK Gfk consumer confidence increased to the highest level in nearly seven years to -3 in April, from March's reading of -5. 

"Just one more reason to be bullish GBP despite slightly disappointing GDP reads yesterday," comments Ipek Ozkardeskaya at Swissquote Research.

Also commenting is Leander Dreyer at Swissquote Research:

"The UK GFK consumer confidence was again slightly better than expected. EUR/GBP is holding just above the 0.8200 level. Cable is also within reach of the 1.6858 cycle top reached on Monday."

There is no data due out of the UK economy for today so the GBP will be subject to external pressures.

Dreyer comments:

"Sterling trading will be at the mercy of the price swings in the euro and the dollar driven by the news-flow in the US and the EMU. We put the risks for the EMU inflation to the downside. If so, this would be a negative for EUR/GBP. On the other hand, we see also upward risks for the US data, which could be a negative for cable.

"However, if this scenario comes true, cable might outperform EUR/USD.

"So, it will be interesting whether EUR/GBP can go for a test of the 0.8190/57 support area. A sustained break is not evident, but if so, it would be highly significant for EUR/GBP and also an indication of a loss of momentum of recent euro strength/resilience. We keep our EUR/GBP negative bias."