GBP/EUR – Pound Weighed Down by BoE Dovishness
While the Bank of England (BoE) did not surprise markets when it left interest rates on hold at its September meeting, the reaction of the Pound was not particularly positive. Policymakers left the door open for another rate cut before the end of the year, a prospect that did not encourage confidence in Sterling. As a result investors are likely to pay closer attention to upcoming communication from the BoE, with signs of persistent dovishness amongst members of the Monetary Policy Committee (MPC) likely to weigh on the GBP/EUR exchange rate. Downside pressure is also expected from the uncertainty still surrounding the details of the UK’s exit from the EU.
GBP/USD – UK Expected to Miss 2016-2017 Borrowing Target
August’s government borrowing figures did not offer much cause for confidence in the Pound, with the UK set to overshoot its borrowing target for the 2016-2017 financial year. This suggests that Chancellor Phillip Hammond will be lacking some degree of manoeuvrability in the Autumn Statement, potentially limiting the fiscal support that can be offered to the domestic economy. Confidence in the resilience of the economy could be boosted, however, if mortgage approval figures for August point towards a robust housing market. Positive UK data could encourage greater demand for the Pound, although it is expected to remain biased to the downside in the near term.
USD/GBP – Fallout of Fed Meeting to Prompt ‘Greenback’ Volatility
In line with recent trends, the latest US housing data proved mixed, muddying the waters ahead of the Federal Reserve’s latest policy decision. The general expectation is for the Fed to remain on hold at this juncture, although there is speculation that policymakers could offer fresh hints at a December rate hike. If the tone of the meeting proves more hawkish then the US Dollar is likely to surge, increasing the market pricing for a return to the monetary tightening cycle before the end of the year. On the other hand, if policymakers appear more cautious in outlook then the USD/GBP exchange rate is expected to trend lower.
EUR/USD – Euro Predicted to Climb on Stronger Economic Activity
Confidence in the single currency has remained relatively limited in recent days, lacking any particularly bullish domestic data to support investor demand. Thanks to uncertainty surrounding the Fed meeting the EUR/USD exchange rate has thus remained on a relatively narrow trend as markets brace for the outcome of the meeting. Should the Fed adopt a less hawkish outlook this would reduce the pressure on the European Central Bank (ECB) to consider further easing. Ahead of the weekend the latest raft of Eurozone PMIs could offer support to the Euro, with forecasts pointing towards a modest improvement in economic activity across the board.