The British pound appears intent to end what has largely been a lacklustre week on the front foot.
The performance vs the US dollar has been soft, however the release of on-par UK GDP data has seen the GBP/USD bounce off support at 1.60 and head higher.
The sterling-dollar rate was well be on course to test the 1.6000 level in the mid-week session but the move higher confirms 1.60 to be a solid level.
A look at the markets shows:
The pound to euro exchange rate conversion: 1 GBP = 1.2688.
The pound to dollar exchange rate conversion: 1 GBP = 1.6075.
The euro to US dollar exchange rate conversion: 1 EUR = 1.2670.
PS: The above are spot market quotes; your bank will affix a spread at their own discretion. An independent FX provider will guarantee to undercut your bank's rates, in some instances they are able to deliver up to 5% more currency. Please learn more.
Sentiment Towards the UK Economy Softens, Sterling Contained
On the economic front the UK GDP figures printed at 0.7% as expected and cable staged a mild relief rally as some traders feared that the recent slowdown in activity could translate into lower growth figures. The preliminary data showed that production rose by 0.5% versus 0.2% the period prior but services slowed to 0.7% from 1.1%.
"The slowdown in activity reflects the tepid demand conditions in EZ as whole, but on that front there was some positive news as GFK Consumer data out of Germany showed an uptick rising to 8.5 from 8.1 expected. The latest data from Europe indicates that conditions have stabilized and may actually improve into the year end as the shock of geopolitical tensions with Russia begins to wane," says Boris Schlossberg at BK Asset Management.
The pound sterling had been hit mid-week by latest figures showing that UK retail sales have fallen faster than expected giving rise to concerns that the UK economy has started to cool.
This will bring joy to the doves at the Bank of England who are on the look-out for any reason to keep UK interest rates held low for as long as possible.
Markets know this and as such are pushing the pound back to match these interest rate expectations.
UK Retail Sales: What Happened?
Retail Sales (YoY) (Sep) grew by 2.7%, analysts had predicted growth of 2.8%.
Retail Sales (MoM) (Sep) fell by 0.3%, analysts had only expected a decline of 0.1%.
Consumer spending has helped drive the UK's economic recovery, but news on Thursday from retailers Debenhams and Tesco and estate agents Foxtons have underlined the slowdown.
Slow wage growth, falling house prices, and global economic worries have raised concerns about the UK recovery and this is now being felt in the currency markets.
Pound to Euro Exchange Rate: GBP Capped at 1.27
The story of GBP/EUR appears to be its inability to break the 1.27 level. A run higher mid-week was ultimately halted and we could see consolidation through the remainder of October.
Several banks possibly failing ECB's stress tests as well as the better than expected US inflation numbers put pressure on the EUR on Wednesday.
Fixed income investment firm Pimco's global banking specialist, Philippe Bodereau, expects 18 banks will be seen to have failed the European Central Bank's stress test of 130 regional lenders when results are published by the ECB on Sunday.
Bodereau, who manages $4.3 billion in the Pimco GIS Capital Securities Fund, said in an interview on Wednesday the failures would likely include some German and Austrian cooperative and public sector banks, as well as weak regional lenders in the southern periphery.
Euro: Remaining Under Pressure
A heightened sense of stronger stimulus to come from the ECB caused the euro to extend a slide against the greenback.
"The euro hit a one-week low, putting the single currency less than two cents away from recent two-year lows. The key takeaway from reports the ECB could boost stimulus is that the central bank seems steadfast in its resolve to boost its balance sheet by a third to around โฌ3 trillion where it was two years ago," says Manimbo.
Doing so would help provide much needed liquidity and credit to banks and businesses in the region to help dig the region out of its economic rut.
"The perception that stronger ECB policies are a matter of time continues to contrast expectations for the Fed to soon end its QE bond buying and boost interest rates next year," says the Western Union analyst.
With the policy spotlight shining brighter on the ECB, it reduced focus on the Fed whose more cautious tone of late has pushed back expectations on the timing of a U.S. rate hike.
Key euro PMIs loom Thursday.
Any further weakness would offer another fundamental reason to reduce exposure to the single currency.
Elsewhere in FX: Canada Shooting
The Canadian dollar has so far escaped any impact from breaking news that the Canadian parliament has been stormed by terrorists.
As yet it seems the situation is under control and unlikely to hit financial markets.
Canadaโs frugal consumers in August pulled the loonie lower in cautious, pre-BOC trade. In a gloomy sign for third quarter growth, Canadian retail sales unexpectedly fell 0.3 percent.
That marked a second straight month in the red for consumer spending.
Forecasts had called for an unchanged (0.0%) reading for August.
Next up for the loonie is the BOCโs policy decision and fresh economic forecasts today at 10 a.m. ET. Any central bank highlighting of downside risks to growth would leave the loonie in line for a revisit of last weekโs five-year lows in the upper C$1.13s.
