GBP/EUR – Bounce in Post-Referendum Data Shored up Sterling Optimism
Confidence in the Pound strengthened considerably on the back of strongly improved Construction and Services PMIs, which suggested that the UK economy had rebounded considerably in August. This encouraged the opinion that the Brexit vote has had a more minimal impact on economic activity than previously feared, helping to ease post-referendum market anxiety further. However, Tuesday’s Consumer Price Index report could counteract recent optimism if inflationary pressures continue rising. Signs of a negative impact on the domestic economy are likely to dent the GBP/EUR exchange rate sharply.
GBP/USD – Pound to Trend Lower on Possibility of More BoE Easing
Demand for Sterling is expected to weaken further ahead of the Bank of England’s (BoE) September policy meeting, given the dovish bias of the central bank. Although the bullishness of the recent PMI data could encourage policymakers to hold off on another interest rate cut for the time being, the prospect of further easing is likely to hang over the Pound. Should the BoE decide to engage in additional monetary loosening at this juncture then the GBP/USD exchange rate is expected to continue moving away from its recent seven-week high.
USD/GBP – ‘Greenback’ Softened as Fed Rate Hike Bets Decline
The odds of the Federal Reserve raising interest rates before the end of the year were dented after August’s Non-Farm Payrolls report disappointed forecasts. Hopes of tightening in the US labour market were dashed as the Unemployment Rate held steady at 4.9%, suggesting that the Fed has less grounds to hike. Should domestic data continue suggesting slowness within the world’s largest economy then the appeal of the ‘Greenback’ is likely to remain muted, particularly if general risk appetite remains heightened. Of particular note will be August’s inflation data, which could encourage greater hawkishness if it betters forecasts.
EUR/USD – Dovish ECB May Not Weigh on Euro Demand
Ecostats from the German economy have been persistently weak in recent days, prompting investor worries over the health of the Eurozone’s powerhouse. An unexpected contraction in industrial production did not offer much cause for confidence, indicating that much of Germany’s growth is now reliant on domestic consumer demand. Greater volatility is expected in response to the European Central Bank’s (ECB) latest policy meeting, with President Mario Draghi likely to take a more dovish tone on monetary policy. Nevertheless, market scepticism over the possibility of more easing could see the EUR/USD exchange rate rally strongly in the wake of any comments.