GBP/EUR Exchange Rate Outlook: Brexit Breakthrough Prompts Pound Surge
Demand for the Pound surged at the start of the week, with investors reacting positively to the publication of a joint EU-UK draft Brexit treaty.
As the two sides appeared to have reached agreement on a number of key issues, including citizens’ rights and the financial sector settlement, GBP exchange rates naturally climbed higher.
However, while the GBP/EUR exchange rate hit a fresh monthly high in the wake of the announcement, a significant degree of uncertainty still remains over Brexit.
With the issue of the Irish border still unresolved there is the potential for the Pound to come under renewed pressure from Brexit-based jitters, especially if some MPs push back against the draft agreement.
GBP/USD Forecast: Higher UK Wage Growth Boosts BoE Interest Rate Hike Odds
Although the UK’s consumer price index (CPI) fell short of forecast in February, showing inflation to have eased to 2.7% on the year, this failed to hold back GBP exchange rates for long.
Today’s average weekly earnings figure showed a stronger-than-expected acceleration in wage growth, encouraging renewed confidence in the Pound.
Given the concerns that some Bank of England (BoE) policymakers have expressed about underwhelming wage performance, this latest improvement has increased the prospect of a May interest rate hike.
Even so, if the Monetary Policy Committee (MPC) fails to adopt a more hawkish tone at its March meeting the Pound could return to a weaker footing ahead of the weekend.
USD/GBP Forecast: Fed Interest Rate decision likely to Support US Dollar Demand
With the impact of an imminent US interest rate hike already priced into USD exchange rates the upside potential of the US Dollar is somewhat limited.
Even so, the appeal of the US Dollar could pick up once again in the wake of the Fed’s March policy decision meeting this evening, featuring an update of policymakers’ latest economic outlook.
If signs point towards the central bank adopting a more aggressive course of monetary policy over the coming months this could see USD exchange rates trending higher across the board tonight.
On the other hand, as markets are already anticipating a total of three interest rate hikes over the course of 2018 anything less than the suggestion of a fourth may have limited impact on the US Dollar, and could even cause it to weaken.
EUR/USD Forecast: Weaker Eurozone PMIs to Limit Euro Outlook
Comments from European Central Bank (ECB) policymakers helped to improve the appeal of the Euro at the start of the week, with the suggestion that the inflation outlook may be more positive than previously thought.
However, EUR exchange rates paid scant attention to this unexpectedly upbeat outlook, and the fact that January’s trade surplus narrowed far more sharply than forecast seemed to reinforce the sense of pessimism.
As the ZEW economic sentiment surveys also disappointed, with the German expectations index sliding from 17.8 to just 5.1, the appeal of the single currency took a hit.
Unless the latest ECB Economic Bulletin adopts a more optimistic position on the bloc’s outlook the Euro is likely to remain under some degree of pressure in the near term, with the odds of any monetary tightening still decidedly slim.