GBP Volatility, Euro Weakness, and USD Challenges.

  • GBP Volatility: UK data shows a weakening labour market but persistent wage growth, making a Bank of England rate cut in June uncertain. The GBP/EUR exchange rate saw fluctuations, with MUFG predicting further weakening to 1.1495.
  • Euro Depreciation: The Euro has declined approximately 2.2% against the US Dollar since early 2024, influenced by diverging inflation trends and monetary policies between the Eurozone and the US.
  • USD Struggles: The US Dollar faced challenges maintaining strength amid mixed economic data, including a higher-than-expected Producer Price Index rise and concerns over inflation.
  • Economic Indicators: Key upcoming data releases include Eurostat’s preliminary GDP data for the Eurozone and the US’s CPI and Retail Sales figures for April, which are expected to impact currency movements.
  • Market Reactions: US stock index futures showed mixed performance, and the 10-year US Treasury bond yield is edging lower, reflecting ongoing market uncertainty.

GBP: Labour Market Weakness and Wage Growth Concerns Keep Pound Volatile

The latest data from the UK suggests a weakening labour market, though wage growth continues to be a significant issue. The timing of a potential Bank of England (BoE) rate cut remains crucial, and the mixed data makes a June decision highly uncertain. Initially, the Pound edged higher following the wage data but then dropped sharply as markets focused on the evidence of a weakening labour market. The Pound to Euro (GBP/EUR) exchange rate initially strengthened to 1.1645 before retreating to around 1.1610. MUFG forecasts a decline in GBP/EUR to 1.1495, maintaining a bearish outlook on the Pound despite recent UK data challenging this view. Unemployment rose to an 8-month high of 4.3% in the three months to March, up from 4.2%, aligning with consensus forecasts. Preliminary data shows payrolls declined by 85,000 in April after a revised 5,000 drop in March.

EUR: Euro Struggles Amid Diverging Inflation and Monetary Policies

Since the start of the year, the Euro has weakened against the US Dollar, driven by divergent inflation trends between the Euro area and the US. The Euro, the official currency for 20 European Union members, has depreciated approximately 2.2% against the Dollar since early 2024. Despite a recent slight increase in value, the EUR/USD exchange rate remains low, just below 1.08 as of May 14. This depreciation is largely due to differing monetary policies between the European Central Bank (ECB) and the US Federal Reserve (Fed), leading to a widened spread in government bond yields. Moving forward, the Euro is expected to remain weak.

USD: Dollar Faces Challenges Amid Mixed Economic Data

The US Dollar is struggling to maintain its strength against major rivals on Wednesday morning. Eurostat is set to release preliminary Gross Domestic Product (GDP) data for the first quarter, and the US economic docket will feature April’s Consumer Price Index (CPI) and Retail Sales data, along with the NY Empire State Manufacturing Index. The US Bureau of Labor Statistics reported a 2.2% year-on-year rise in the Producer Price Index (PPI) for April, exceeding the expected 1.8% increase. Despite initially boosting the Dollar, the improving risk mood later caused the currency to lose traction. The USD Index closed in negative territory for the second consecutive day on Tuesday, hovering below 105.00. Meanwhile, US stock index futures were mixed early Wednesday following gains of 0.3% to 0.7% in Wall Street’s main indexes on Tuesday. The benchmark 10-year US Treasury bond yield is edging lower, approaching 4.4%.

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.