GBP/EUR – BoE easing measures prompted sharp Sterling downtrend
Even though markets widely anticipated the Bank of England’s (BoE) decision to cut interest rates to a fresh record low of 0.25% that didn’t prevent the Pound from slumping sharply in the wake of the announcement last week. This was largely due to the fact that policymakers went further than expected, opting to restart a substantial quantitative easing program in an attempt to support the domestic economy. As members of the Monetary Policy Committee (MPC) also indicated a willingness to cut interest rates further if economic data does not improve, Sterling is likely to remain under pressure for the foreseeable future. If upcoming job market data proves disappointing then the GBP/EUR exchange rate may well weaken further.
GBP/USD – Brexit-based concerns to maintain downside pressure on Pound
Investors were somewhat discouraged to find that the BoE’s quantitative easing program had not gotten off to the best start on Tuesday, as the bank failed to find all of its £1.17 billion target of long-term gilts. However, as this raised the likelihood of the government stepping in with more substantial fiscal policy changes the Pound was able edge higher against some of its rivals. Next week’s UK Consumer Price Index for July is expected to provide further volatility for GBP exchange rates, as this will be the first post-Brexit inflation data for the UK. If the impact of the vote is found to have pushed inflation markedly higher this could lead to a resumption of Pound selling.
USD/GBP – Reduced Fed rate hike bets weighed on US Dollar
Confidence in the US Dollar was boosted sharply by a stronger-than-expected Non-Farm Payrolls report for July, which pointed towards robust tightening within the domestic job market. However, the odds of a 2016 interest rate hike from the Federal Reserve soon weakened thanks to disappointing productivity data, pushing the ‘Greenback’ lower against rivals. Upcoming US inflation data will be of particular interest to investors, with further progress towards the Fed’s target range likely to ignite debate. Even so, if other domestic data disappoints then the USD/GBP exchange rate may struggle to regain substantial ground.
EUR/USD – Volatility predicted in response to Eurozone GDP reports
The news that the EU would not be sanctioning Spain and Portugal as a result of their breach of deficit targets was received positively by markets, shoring up the Euro. With Germany continuing to demonstrate signs of robustness and a widening trade surplus there was little reason for investors not to favour the single currency over its near rivals. This bullishness could be cut short if the raft of second quarter Eurozone GDP reports prove disappointing, though. If growth across the currency union is shown to have faltered then the EUR/USD currency pair is likely to slump sharply.