Pound Euro Exchange Rate Flops, US Dollar Strengthens on Surprising Jobless Claims
- Written by: Gary Howes
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The euro had initially been hurt by downbeat commentary from the European Central Bank's President Draghi on Thursday following the monthly policy meeting but seems to have perked up overnight.
Meanwhile, the Bank of England offered markets no surprises by keeping rates unchanged. Soft sentiment on the GBP is expected to remain a feature on global FX for some time to come.
At the weekend we see:
- The euro to pound exchange rate (EUR/GBP) is at 0.7992.
- The euro to dollar exchange rate (EUR/USD) is at 1.3409.
- The pound to dollar rate (GBP/USD) is at 1.6777.
As you can see the US dollar is continuing with its run higher; an unexpected fall in jobless claims has got traders buying USD.
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GBP sentiment remains poor
It was eight-week lows for sterling against the dollar as markets discarded the U.K. currency and headed for higher ground.
Investors found another reason to pare exposure to GBP on weaker than expected domestic trade data. Britain’s trade gap unexpectedly swelled to £9.4 billion in June from a revised shortfall of £9.2 in May.
Next week’s Inflation Report should now be the main UK focus, although the labour market data next week will also be of interest.
Central banks drive GBP and EUR sentiment
There were no surprises from the Bank of England (BoE) this week - we await the minutes of today's meeting later in the month to see how many members, if any, are voting to raise rates.
The ECB also kept rates unchanged, but President Draghi has struck a rather somber tone in his press conference, this has introduced some weakness into the euro exchange rate complex.
"Draghi managed to avoid saying anything too committal at yesterday’s press conference, and if anything focused on the slight improvement in the trends in bank lending rather than the recent weak data and increasing geopolitical risks in Europe. This was not surprising as the biggest risk for the Eurozone at the moment is a loss of confidence rather than tight monetary policy, and Draghi sensibly guarded against that," say Lloyds Bank Research.
Dennis de Jong, managing director at UFX.com, comments:
“The introduction of record low interest rates from the ECB last month hasn’t had enough time to deliver the desired results yet, but Mario Draghi is committed to his strategy of trying to inject some life into the economy and combat the ever-increasing risk of deflation.
“The situation in Russia remains a real concern for the ECB and with the Eurozone economy in its current state of stagnation, it may only be a matter of time before further monetary stimulus is introduced.”
US dollar continues its winning ways
Today's euro dollar and pound dollar rate decline comes courtesy of some strong US data.
US initial claims fell by 14,000 to 289,000 in the week ending August 2, 2014 and followed a revised 303,000 reading (was 302,000) in the previous week.
Markets had expected a slight increase to 305,000 in the latest week.
"Firm labour market gains are expected to continue in the second half of 20014, as evidenced by a still solid 209,000 increase in July, and the strong underlying employment momentum is expected to support an above-potential pace of gross domestic product (GDP) growth in the coming quarters after recording a 4.0% rise in the second quarter of 2014," says Laura Cooper, Economist at RBC Economics
Expect US dollar strength to be maintained.