Exchange Rate News: Pound (GBP) Weaker against Euro (EUR) and US Dollar (USD)

The Pound fell against almost all of its currency counterparts as the week progressed, posting a notable decline against the Euro (GBP/EUR) and US Dollar (GBP/USD). Demand for the British asset had been undermined at the close of last week as the UK published a disappointing Manufacturing PMI for December. The Markit report showed that the gauge of UK manufacturing fell to a three-month low of 52.5 at the close of 2014. In a statement published in the report economist Rob Dobson observed; ‘The latest survey provides further evidence of the ongoing slowdown in the UK manufacturing sector, with output and new order growth easing to their second-weakest rates during the past year-and-a-half. Despite this end of year tapering, the sector still performed well over 2014 as a whole, with growth averaging at its highest since 2010.’

The data saw investors pare their Bank of England (BoE) interest rate hike expectations and inspired widespread Pound losses. At the beginning of a fresh week of trading both the Pound to Euro and Pound to US Dollar exchange rates consolidated and extended declines as the UK’s Construction PMI also failed to meet forecasts. The less-than-impressive construction report was followed by concerning services figures, and the UK now looks set to post growth of just 0.5% in the final quarter of 2014. As the week progresses the Pound could trend lower still against the US Dollar if the minutes from the Federal Open Market Committee (FOMC) are hawkish in tone. Given that the Fed adopted its interest rate rhetoric at its last gathering, the minutes could well contain some hint regarding the future path of borrowing costs. The GBP/EUR exchange rate, meanwhile, could be affected by German Retail Sales and unemployment figures as well as the Eurozone’s Consumer Price Index. If the pace of inflation in the currency bloc is shown to have fallen to or beyond -0.1, as economists expect to be the case, it will increase the odds of the European Central Bank introducing aggressive stimulus measures when it gathers on the 22nd of January. The Euro could soften following the release of the CPI data and the Pound could recoup losses.