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The Pound to Euro exchange rate has recovered somewhat from near November lows since April 11 and could be likely to trade buoyantly within a 1.1565 to 1.1709 range over the coming days in what would largely be a reflection of the Dollar’s gyrations against the single currency and Sterling.
GBP/EUR rebounded sharply from near 1.1448 on Friday, 11 April to reach highs around 1.1726 last Wednesday when UK inflation was reported to have fallen further than expected for March, a session in which the Dollar also pared some of its earlier losses following a strong retail sales report for the same month.
However, much of the fall since early April has effectively been a reflection of a broad US Dollar depreciation that has favoured currencies of current account surplus jurisdictions including the Euro, and it might well be these ongoing Dollar gyrations that define price action through the week ahead too.
“What’s driving this further move lower in the Dollar is perhaps the continued theme of the decline of US exceptionalism, with some concerning signs last week that the Trump administration is looking for ways to fire Fed Chair Powell,” says Michael Wan, a senior currency analyst at MUFG.
Above: GBP/EUR at hourly intervals alongside ICE US Dollar Index. Click for closer inspection.
President Donald Trump’s weekend statements suggesting a trade agreement between the US and China might be reached in “the next three or four weeks,” might boost the Dollar this week, with uncertain implications for GBP/EUR, and particularly if it helps Beijing to lift the Renminbi off its recent trade-weighted lows.
However, the White House campaign against Federal Reserve Chairman Jerome Powell, its tariff policy, the imperial optics around its trade dispute with China and the evolving response from Beijing all suggest that any meaningful or lasting stabilisation of the greenback may be unlikely this week.
“Let me just say very squarely that I have a lot of respect for my esteemed colleague and friend, Jay Powell. We have a steady, solid relationship amongst central bankers. I think that that relationship is decisive in order to have a solid financial infrastructure,” says Christine Lagarde, of the European Central Bank, last Thursday.
Uncertainty over the fate of Chairman Powell and US commitment to a so-called independent central bank is another headwind to confidence in the Dollar, coming at a time when the greenback is already coming under pressure from a falling trade-weighted Renminbi and unraveling equity markets.
Above: GBP/EUR at daily intervals with ICE US Dollar Index. Click for closer inspection.
American equities have fallen heavily because of White House tariff policy and its negative implications for near-to-medium term corporate profits, which make valuations appear obscene, as there isn’t a corporate finance textbook in the world that could justify anything except falling prices in those circumstances.
“There is a nice African saying which goes “you never swim twice in the same water”. I think for economic players, investors, consumers, employers, employees and all categories, confidence, predictability and a reasonable level of certainty are important factors for them to make decisions,” Lagarde says, echoing the words of an ancient Greek philosopher and so-called “sage of Ephesus,” otherwise known as Hericlitus.
Hericlitus reportedly coined the term “Logos” and is recorded as one of the earliest thinkers to have explored the notion of a first primordial, and the primordial layering of all things. However, the above recital may or may not have been contextually flawed due to its original presentation in support of “Flux Theory,” which posits that no one thing can ever be the same thing from one moment to the next.”
“Ultimately, Heraclitus loads his words with layers of meaning and complexities that are to be discovered in insights and solved like riddles. As he implies in the second sentence of his introduction, B1, his logoi are designed to be experienced, not just understood, and only those who experience them in their richness will grasp his message,” researchers at Stanford University say, in a summary of his works.