Headlines
• GBP/EUR Holds Above 1.41 despite Mixed UK Labour Data
• BoE Governor Suggests UK Can Withstand External Risk Factors
• European Geopolitical Tensions Weigh on Euro
• USD Overvaluation Concerns Result in Quiet Market Trade
GBP/EUR – Sterling holds above 1.41 on European Geopolitical Uncertainty
Over the past week the Pound Sterling to Euro (GBP/EUR) exchange rate dropped from a best rate of 1.4193 to trend in the region of 1.4114 today.
The British asset saw significant losses against its major peers last Thursday following a particularly dovish growth and inflation outlook from the Bank of England (BoE). The Pound accrued additional losses following the BoE interest rate decision in which all but one policymaker voted to hold the cash rate. Policymakers cited external risk factors from China and a lack of domestic price pressures as the principle reasons for holding off a rate increase. The result of this surprisingly dovish outlook was to see many traders delay bets regarding the timing of a BoE rate hike to 2017.
As the week progressed, however, the Pound Sterling to Euro (GBP/EUR) exchange rate climbed in response to an unexpectedly positive US Non-Farm Payrolls result. This caused the Euro to dive thanks to negative correlation with the US Dollar and the prospect of widening central bank policy divergence. At a time when the Federal Reserve is considering hiking the overnight cash rate, the European Central Bank (ECB) is flirting with the prospect of making policy even more accommodative in the hope of stimulating inflationary growth.
Today the GBP/EUR conversion rate edged higher to hold above the 1.41 mark. This is despite a mixed-bag of British labour market data results. The Euro weakness can be attributed to mounting geopolitical uncertainty after Portugal’s centre-right ruling party was ousted by a coalition of anti-austerity socialists. This provoked fears that Portugal will face similar issues to Greece when the inevitable divide between the ruling party and creditors comes to the fore.
GBP/USD – ‘Cable’ Holds Below 1.52 despite USD Overvaluation Concerns
In the wake of last Friday’s much better-than-anticipated US Non-Farm Payrolls result, which caused the US Dollar to rally amid improved 2015 Federal Reserve rate hike bets, overvaluation concerns have halted ‘Greenback’ (USD) gains. The comparatively high value of the US Dollar could present a real drag on domestic economic progress and may even prevent the Federal Open Market Committee (FOMC) from raising rates in December.
On Wednesday the Pound to US Dollar exchange rate ticked higher by 0.2% to trend in the region of 1.5164 ahead of US Mortgage Applications data. The appreciation came despite the fact that October’s British Jobless Claims Change saw a greater number of claimants than estimated and wage growth failed to meet with expectations in the three months ending in September. Somewhat countering these disappointing ecostats was an unexpected drop in British unemployment and a better-than-expected result from Employment Change data.
USD/GBP – Hawkish Carney sees Pound edge higher versus the US Dollar
Over the past week the US Dollar to Pound Sterling (USD/GBP) exchange rate was trending within the range of 0.6484 to 0.6653.
As previously outlined, the US Dollar has seen subdued trade of late amid concern that overvaluation will be a massive hindrance to economic growth. Also weighing on demand for the US Dollar was recent data from China which showed inflation dropped beyond expectations. This signals ongoing economic difficulties in the world’s second-largest economy and FOMC policymakers may feel that the global economy cannot handle a Fed rate hike in its current condition.
The Pound Sterling has found support today following a speech from Bank of England Governor Mark Carney. The central bank chief stated that the strength of domestic economic conditions was such that the UK can withstand external risk factors. This somewhat contradicts the most recent Monetary Policy Committee (MPC) minutes which stated that policymakers held off from tightening monetary policy amid concern regarding China’s economic slowdown, but does support hopes for a sooner-than-anticipated BoE benchmark interest rate hike.
EUR/USD – Euro declines on divergent policy outlook
Despite a spate of US Dollar profit-taking, the shared currency continues to hold a comparatively weak position versus the North American asset. This is mainly due to projections of widening monetary policy outlook as the European Central Bank (ECB) flirts with the prospect of easing policy to stimulate Euro-area price pressures.
With a complete absence of influential European economic data today, the shared currency is likely to continue to struggle amid geopolitical uncertainty.