GBP/EUR – Weaker Production Data to Halt Pound Gains
The Pound took a bit of a hit earlier in the week thanks to weakening consumer credit and mortgage approvals figures. These suggested that confidence within the domestic economy softened in the wake of the Brexit vote, giving investors little reason to favour Sterling over its rivals. Similar weakness is expected for July’s raft of UK production data, which is forecast to show a decline in output. Any fresh signs of post-referendum slowness are likely to return the GBP/EUR exchange rate to a downtrend in spite of current market optimism regarding the outlook of the UK economy.
GBP/USD – Bullish Manufacturing PMI Shored up Sterling
Sterling entered a bullish run on Thursday as the Manufacturing PMI for August smashed expectations, climbing from 48.3 to 53.5 in the measure’s joint strongest recovery since its creation. Naturally this encouraged greater demand for the Pound, with the upside surprise suggesting that the negative impact of post-referendum uncertainty had been decidedly limited. However, much of this uptick could be attributed to the relative weakness of the Pound itself, which boosted export orders. Should the corresponding Construction and Services PMIs show similar improvement, though, Sterling is likely to extend its recent gains.
USD/GBP – Non-Farm Payrolls Could Boost Fed Hike Odds and US Dollar
Markets have been in a slightly mixed mind in their response to Fed Chair Janet Yellen’s speech at the Jackson Hole Symposium, as the policymaker left the door open for monetary tightening but was not overly hawkish. This has seen the US Dollar fluctuating in response to ongoing speculation over the chances of a 2016 interest rate hike, as well as the inconclusive nature of recent domestic data. If Friday’s Non-Farm Payrolls report proves bullish then the ‘Greenback’ could strengthen across the board, with the labour market being one of the key considerations of the Fed in assessing monetary policy.
EUR/USD – Eurozone Inflation Failed to Rise as Forecast
Discouragingly, inflationary pressure within the Eurozone was found to have held steady on the year at 0.2%. This disappointed expectations of a modest uptick and encouraged speculation that the European Central Bank (ECB) could unveil further monetary easing in the near future. With that in mind traders will be paying close attention to Thursday’s ECB policy meeting, despite the fact that any action at this juncture seems decidedly unlikely. Should President Mario Draghi adopt a more dovish tone, the EUR/USD exchange rate is expected to trend lower, with greater policy divergence set to dent the appeal of the Euro.