Surprisingly Weak UK GDP Prompts Pound Slide

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Headlines

  • Stronger Australian Producer Price Index Supported ‘Aussie’ – Weakness forecast ahead of RBA meeting
  • GBP Exchange Rates Slumped on Shock UK GDP Weakening – BoE interest rate hike odds dented by stalling growth
  • US Dollar Gains Eased in Spite of Stronger Growth Data – USD upside limited after bullish week
  • Softer French Growth Added to Euro Losses – Signs point towards loss of momentum for Eurozone economy

Australian Dollar

AUD exchange rates recovered some ground ahead of the weekend as the first quarter Australian producer price index bettered forecast. This suggests that inflationary pressure is continuing to build within the domestic economy, something which could encourage Reserve Bank of Australia (RBA) policymakers. As the Australian Dollar saw persistent selling over the course of the week this gave AUD exchange rates additional scope for gains on Friday.

An uptick in private sector credit could offer the ‘Aussie’ further support today, even as markets brace for the latest RBA policy meeting.

Sterling

Demand for the Pound weakened sharply during Friday’s European session as the first quarter UK gross domestic product fell significantly short of forecast. Investors were caught off guard when growth was reported to have slowed to just 0.1% on the quarter. A sharp decline in construction and a slowing service sector saw economic growth slow to a near-standstill, pushing the measure to its lowest level since 2012. With the odds of an imminent Bank of England (BoE) interest rate hike diminishing there was little reason to favour Sterling.

In the absence of any greater sense of clarity over Brexit GBP exchange rates are likely to remain under pressure in the near term.

Euro

The appeal of the single currency failed to particularly improve even after a better-than-expected Eurozone economic confidence index. Markets were more concerned by underwhelming French gross domestic product data, however. With signs suggesting that the Eurozone lost some of its economic momentum in the first quarter of 2018 this encouraged bets that the European Central Bank (ECB) will remain on hold for longer.

An uptick in April’s German consumer price index may encourage the Euro to rally this evening.

US Dollar

While the annualised US gross domestic product proved stronger than anticipated, clocking in at

2.3% rather than 2.0%, the US Dollar still came under renewed pressure. After a week of bullish gains the upside potential of USD exchange rates was rather limited, encouraging investors to sell out of the lower-yielding currency. However, with high odds of more aggressive Federal Reserve policy tightening already priced in the downside bias of the US Dollar was rather muted.

If tonight’s US personal consumption expenditure core figure proves positive this could prompt fresh US Dollar gains.

Canadian Dollar

The Canadian Dollar saw rather muted movement ahead of the weekend even as oil prices dipped. A solid US Dollar limited the appeal of the commodity-correlated CAD, with the Fed and Bank of Canada (BOC) looking set to see a further policy divergence in the months ahead. As markets continue to wait for a resolution of NAFTA renegotiations CAD exchange rates remain somewhat jittery.

Should the latest Canadian industrial product price index surprise to the upside, though, the Canadian Dollar could find a rallying point.

New Zealand Dollar

Demand for the New Zealand Dollar was not encouraged by March’s raft of domestic trade data, with the trade balance showing a surprise deficit. A sharp increase in import volumes undermined confidence in the domestic outlook, highlighting the New Zealand economy’s vulnerability to any deterioration in the health of the global market.

Any weakness from April’s ANZ activity outlook could put additional downside pressure on NZD exchange rates today.

Data Released

April 30th 11:00 NZD ANZ Activity Outlook (APR)
April 30th 11:30 AUD Private Sector Net Credit (YoY) (MAR)
April 30th 22:00 EUR German Consumer Price Index (YoY) (APR P) 1.6%
April 30th 22:30 CAD Industrial Product Price (MoM) (MAR)
April 30th 22:30 USD Personal Consumption Expenditure Core (YoY) (MAR) 2.0%

Post by TorFX

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