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Pound (GBP) Exchange Rates Pull Back as IMF Report Highlights UK Productivity Issues

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‘UK Economy Must Become More Efficient’ – IMF Report Drags on Pound (GBP) Exchange Rates

Britain needs to give priority to the improvement of its productivity, according to the latest International Monetary Fund (IMF) report, with the Pound’s devaluation and poor efficiency combining to potentially limit the UK’s economic growth.

The IMF asserted once again that Brexit is weighing on the UK’s economy through the devaluation of Sterling and ongoing uncertainty – with many business investments being put on hold until a greater degree of clarity regarding the UK’s future outside of the EU is revealed.

The assessment suggested that the UK should build more homes, improve the quality of infrastructure, invest more in research and reform the education system as measures to counteract this. It also highlighted the fact that very little will be known about the consequences of Brexit for many years.

The report, combined with the imminent US inflation readings, kept Pound (GBP) exchange rates on a nervous footing.

In slightly better news the latest Bank of England (BoE) regional agents’ report revealed that businesses expect pay rises to grow in 2018, with pay settlements set to increase by 3.1% this year, up from 2017’s 2.6%.

This projection failed to provide much immediate support for Sterling, however.

GBP/EUR Exchange Rate Slips on Eurozone GDP Readings

The Pound Euro (GBP/EUR) exchange rate slipped slightly on Wednesday morning as markets responded to the latest Eurozone growth figures and an above-forecast Eurozone industrial production print.

According to data from Eurostat, the Eurozone’s gross domestic product (GDP) growth rate reading rose to 2.7% year-on-year in Q4 2017, unrevised from the preliminary estimate and slightly below the previous period’s 2.8% print.

Over the entirety of 2017 Eurozone GDP growth was confirmed at 2.5%, however – the fastest growth rate seen since 2007’s 3.0% rate.

Joerg Kraemer, Chief Economist at Commerzbank shared his thoughts on the readings:

‘We continue to believe that the upswing could continue for another two or three years despite the roll-back of labour market reforms because cyclical tensions on the labour market are not yet in sight.’

In other news year-on-year industrial production in the bloc shot up by a whopping 5.2% in December, smashing the previous period’s 3.2% and the forecast of 3.6%.

This left the Euro on a solid footing, though markets remain cautious ahead of today’s US inflation figures.

GBP/USD Exchange Rate Down ahead of US Inflation Figures

The Pound US Dollar (GBP/USD) exchange rate stumbled on Wednesday morning as markets prepared for the highly-anticipated US consumer price index readings.

Analysts currently expect the year-on-year figure for January to slip from 2.1% to 1.9%, with a slightly less severe slip in the core reading (excluding food and energy) from 1.8% to 1.7%.

If this occurs then the GBP/USD exchange rate could find renewed support.

If inflation proves higher-than-expected for this period, however, then calls for a Fed rate hike in March will gain even more support, potentially putting the GBP/USD exchange rate under renewed pressure.

GBP/CAD Exchange Rate Tumbles despite Sinking Crude Oil Prices

The Pound Canadian Dollar (GBP/CAD) exchange rate stumbled on Wednesday, failing to capitalise on price volatility in Canada’s primary export; crude oil.

Crude oil prices remain limited by two primary factors, the first being growth in the volume of US shale oil production, which has added to the global supply glut, and the second being chaos on equity markets, which continues to leak into the energy sector.

Lacking any notable Canadian data this week the GBP/CAD exchange rate will also be under the thumb of today’s US inflation release.

GBP/AUD Exchange Rate Slips – Australian Employment Figures on the Horizon

The Pound Australian Dollar (GBP/AUD) exchange rate will largely be governed by the US inflation release today, with an unexpected rise in American consumer prices liable to bolster the ‘Greenback’ (USD) and siphon demand away from the ‘Aussie’ Dollar.

However, tomorrow will see the publication of Australia’s jobs market readings for January, with the unemployment rate expected to hold steady at 5.5% – consistent with the previous period.

This could provide some support for AUD, though the ongoing volatility in iron ore prices (Australia’s primary export) could give the GBP/AUD exchange rate some relief.

GBP/NZD Exchange Rate Extends Fall on Upbeat RBNZ Inflation Expectations

The ‘Kiwi’ (NZD) sprinted ahead on Wednesday morning, spurred on by an upbeat Reserve Bank of New Zealand (RBNZ) inflation expectation report.

The Reserve bank’s quarterly survey of expectations revealed that business managers forecast annual inflation to climb to an average of 2.11% over the next two years, up from the previous expectation of 2.02%.

This news was a relief for markets that had been concerned with New Zealand’s inflation outlook – with a hawkish move from the RBNZ very much dependent on inflation holding ground at the target rate of 2%.

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