GBP/EUR – Weaker UK retail sales predicted to dent Sterling
Another blow to confidence in the UK housing market came from the RICS House Price Balance for July, with the measure dipping from 15% to 5% in the immediate aftermath of the EU referendum. This did not particularly encourage optimism in the Pound or the outlook of the domestic economy, prompting the GBP/EUR exchange rate to extend its downtrend. Estate agents had previously warned of the negative impact of the Brexit vote on the market, encouraging expectations that the boom in prices is likely at an end.
Thursday’s UK Retail Sales report could see a similar weakening in demand, assuming that consumer spending is shown to have fallen in July.
GBP/USD – Stronger inflation and employment diminished Brexit worries
However, the Pound has returned to a stronger trend this week on the back of better-than-expected inflation and labour market data. While there are concerns that the Bank of England’s (BoE) 2% inflation target is likely to be overshot in the coming months this was not enough to prevent GBP exchange rates from rallying in response to the bullish figures. However, this newfound confidence could be short-lived if the latest government borrowing report points towards a sharp increase in spending.
Brexit-based uncertainty is expected to remain a significant drag on the Pound for the foreseeable future, even if domestic data proves more positive for the time being.
USD/GBP – Increasing odds of 2016 Fed move likely to shore up pairing
Speculation over the odds of the Federal Reserve returning to its monetary tightening cycle in the near future has provoked a great deal of ‘Greenback’ volatility over the last week. While US inflation data seemed to dent the chances of an imminent rate hike, this was countered by hawkish comments from the New York and Atlanta Fed Presidents.
Should the minutes of the July FOMC meeting point towards further hawkishness then the US Dollar is likely to strengthen across the board, which could push the USD/GBP back towards its recent multi-year high. If the Fed is deemed to be less likely to hike, though, the ‘Greenback’ could fall out of favour with markets once again.
EUR/USD – Less Dovish ECB Commentary Predicted to Boost Euro
Although there have been worries over the uneven nature of growth within the Eurozone, that didn’t prevent the Euro from gaining ground against the US Dollar. Markets were encouraged by a far stronger-than-expected Eurozone ZEW Economic Sentiment Survey, which indicated that domestic confidence had rapidly recovered from the Brexit surprise.
This would seem to bode well for the outlook of the currency union, especially with next week’s raft of Manufacturing and Services PMIs expected to point towards greater robustness. Also of interest will be the account of the last European Central Bank (ECB) policy decision, with any less dovish commentary likely to boost the appeal of the Euro.