GBP/EUR – Hard Brexit Worries Prompted Sharp Sterling Slump
The Pound plunged sharply in response to comments from the Conservative party conference, with investors spooked by the increasing prospect that the UK faces a hard exit from the EU. As fears mounted that access to the single market could fall by the wayside in negotiations, appetite for Sterling diminished markedly. As policymakers are likely to maintain their current line, market worries are expected to continue to exert downside pressure on the GBP/EUR exchange rate for the foreseeable future. With positive domestic data having been largely ignored in recent days it seems that the Pound will be primarily driven by sentiment as the picture of Brexit forms further.
GBP/USD – Wider Trade Deficit Predicted to Weigh on Pound
September’s raft of UK PMIs all bettered forecast, pointing towards greater resilience within the domestic economy. Even so, this was not enough to prevent the GBP/USD exchange rate falling to a fresh 31-year low. Expectations are rather mixed for Friday’s round of domestic data, with a modest widening of the visible trade deficit likely to give investors further reason to sell out of the Pound. Any upside surprise could encourage some degree of support for Sterling, as the UK’s sizable trade deficit is a significant worry in its decoupling from the EU and any subsequent impact on trading conditions.
USD/GBP – Non-Farm Payrolls to Determine Fed Rate Hike Odds
A stronger-than-expected ISM Manufacturing Index prompted a flurry of bets that the Federal Reserve could raise interest rates before the end of the year. With risk appetite also generally limited, the appeal of the safe-haven US Dollar was enhanced further. However, the ‘Greenback’ is set to see renewed volatility on the back of the latest Non-Farm Payrolls report, given the emphasis that the Fed places on the employment data. If the labour market is shown to have remained tight then the odds of a December rate hike are likely to climb, offering a further boost to the US Dollar.
EUR/USD – Strong German Production Data Could Boost Euro
Fresh worries over the future of the Greek economy helped to mute the appeal of the Euro this week, with the successful fulfilment of bailout conditions under question once again. As the latest Eurozone data offered fresh evidence of weakness within the currency union the EUR/USD exchange rate has remained largely range-bound. If domestic ecostats continue to disappoint then the single currency could fall further out of favour. However, expectations are for a strong rebound in German factory orders and industrial production, which should offer the Euro some cause for strength.