GBP/EUR – Sterling Jittery Ahead of BoE Policy Decision
Despite the UK trade deficit for July failing to narrow by as much as forecast, the appeal of the Pound improved ahead of the weekend. Investors were encouraged by an unexpected rebound in July’s construction output, with the 1.5% uptick pointing towards more limited post-referendum weakening. However, as the Bank of England (BoE) meets for its September policy meeting this week the GBP/EUR exchange rate is likely to come under increasing pressure. If policymakers continue indicating a willingness to ease monetary policy again in the near future then the Pound is expected to slump sharply.
GBP/USD – Pound Forecast to Weaken as Brexit-Based Worries Rise
The outlook of the UK economy was not improved by the first raft of post-referendum jobs data, due to a marked slowing in average weekly earnings. Given the importance that the BoE places on wage growth and the likelihood of inflation rising further in coming months this prompted the Pound to soften somewhat. Monday’s Rightmove House Price report could encourage greater demand for Sterling, providing that the UK housing market continues to demonstrate resilience. Even so, as Brexit negotiations continue casting a shadow over the UK’s future the GBP/USD exchange rate may struggle to gain any particular momentum in the near future.
USD/GBP – Fed Hike Bets to Continue Dominating US Dollar Outlook
Less hawkish speeches from members of the Federal Open Market Committee (FOMC) failed to particularly curb market speculation over the likelihood of interest rates being raised before the end of the year. Even with US data failing to paint a universally positive picture, the mood towards the US Dollar has remained optimistic, buoyed by increased safe-haven demand. A strong showing from Friday’s Consumer Price Index report would encourage investors to continue piling into the ‘Greenback’ ahead of next week’s policy meeting. Either way, the US Dollar is expected to experience greater volatility in anticipation of the Fed’s rate decision.
EUR/USD – Wider Eurozone Surplus Could Boost Euro
After the European Central Bank (ECB) indicated that there had been no discussion of further monetary loosening the EUR/USD exchange rate strengthened, with the appeal of the Euro generally improving on the implication. Even though economic sentiment in Germany was later shown to have weakened in September this failed to particularly weigh on the single currency. A widening in July’s Eurozone trade surplus could offer further support to the Euro, despite reigniting worries over progress on Greece’s bailout reforms. However, while no change is predicted for the finalised Eurozone CPI figures the reminder of the currency union’s persistently low inflation could undermine investor confidence.