The pound is closing out the week on the back foot as we saw over 1.5% lost against a rallying euro and cable slide by over two cents. The GBP/USD pair fell to an intraday low of 1.5302 after data in the US showed the weekly initial jobless claims fell to a 15-year low. A minor technical correction, then followed to ensure the pair ended at 1.5352. GBP appears more vulnerable than ever to weaker UK economic data, given the presence of the election uncertainty. Moreover, the markets are now likely to focus on the threat of a hung parliament following the May. 7 elections in the UK. The slowdown in the US in the first quarter has been priced-in by the markets. Plus, the Fed has maintained its optimistic stance regarding the future economic growth. So the focus is likely to be on the UK story now. UK manufacturing PMI due today could provide some support to sterling if it is encouraging. However, if the data highlight a slowdown in the activity, the bearish effect on the GBP could be amplified due to presence of election uncertainty.
The euro held its biggest monthly gain in 4 1/2 years amid signs of life for the world’s second-largest economy, while the dollar rebounded against peers on prospects U.S. growth will pick up after a sluggish first quarter. Speculators had built up record bets the euro would drop versus the greenback as the European Central Bank started buying bonds while the Federal Reserve discussed raising interest rates this year. That policy divergence remains, after economic reports Thursday underscored the Fed’s assessment that recent weakness in U.S. growth may be transitory.“Improving euro-area data spurred an unwinding of bets on euro weakness under the European Central Bank’s aggressive easing,” said Yasuhiro Kaizaki, vice president for global markets at Sumitomo Mitsui Trust Bank Ltd. in New York. “Depending on German yields, the euro could test the middle of the $1.13 level, having broken above $1.10.” Against sterling we saw the single currency take over 1.5% as EUR/GBP pushed to 0.7319. The euro was at $1.1212 vs the dollar as of 6:45 a.m. in London, after climbing 4.6% in April to close at $1.1224 on Thursday. It gained 0.2% to 134.20 per yen after surging 1.2%.
The Bloomberg Dollar Spot Index, a measure of the U.S. currency against 10 major peers, added 0.2% to 1,167.07. On Wednesday, it reached its lowest level since Feb. 6. The gauge fell in April for the first month since June. The dollar declined this week against eight of 10 major peers after U.S. growth trailed forecasts, clouding the outlook for Fed tightening. Analysts expect the dollar to resume its climb once upcoming data show the recovery is intact and the Fed is set to raise rates. Even after its losses in April, the greenback was the best-performing major developed currency during the past year, gaining 17%. The dollar is waiting for direction from European and U.S. yields and if today’s ISM data beats forecasts, views will strengthen that a slump is temporary and the dollar will advance on expectations over a Fed rate hike.