The pound retreated on Thursday after the Bank of England (BoE) struck a more cautious tone than expected following its latest policy meeting.
GBP/EUR jumped from €1.1426 to €1.1511, GBP/USD advanced to $1.2911 from $1.2835, GBP/AUD closed the day at A$1.7409 (up from A$1.7343) and GBP/NZD hit a high of NZ$1.8269.
Will there be more currency movement before the weekend? Keep scrolling to find out…
What’s been happening?
Election polls have been controlling currency movement in recent days, but on Thursday Sterling was able to strengthen slightly thanks to impressive UK manufacturing data.
While the Markit manufacturing index eased slightly from its recent three-year high of 57.4, job creation surged and the business outlook brightened.
Markit economist Rob Dobson stated; ‘The strong PMI numbers suggest the manufacturing sector has gained growth momentum in the second quarter after the sluggish start of the year. The ongoing strength of the domestic market remains the main driver of the upturn. Growth of new export business played a lesser role in comparison, with the trend in foreign demand continuing to improve only in fits and starts, despite the assistance of a historically weak Sterling exchange rate.’
However, the pound’s gains against the euro were limited as the common currency strengthened in response to upbeat data from the currency bloc.
Over in the US, President Donald Trump was making headlines once again. Trump was left fending off criticism from all sides after he announced that he would be pulling the US from the Paris Climate Agreement.
The controversial decision didn’t have too much impact on the US dollar however, with a strong ADP employment change figure lending support to hopes that the Federal Reserve will increase interest rates this month.
What’s coming up?
The GBP/USD exchange rate could experience volatility before the weekend depending on how the US nonfarm payrolls report comes out.
Another strong employment figure would further heighten the odds of US borrowing costs rising and could see the pound fall against the US dollar before the end of the day.
Next week the UK will vote in the 2017 general election. Pound volatility can be expected in the days leading up to 8th June as the latest polls offer some indication of what the result could be.
If, despite recent developments, PM Theresa May does manage to pull off a landslide victory the pound could surge on Friday thanks to the belief that a greater Conservative majority would improve the UK’s hand in Brexit negotiations.
Any other outcome would add to the uncertainty surrounding the UK’s exit from the EU, so we could see the pound spiralling lower.
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)