GBP/EUR – Flash Crash Exacerbated Sterling Downside Pressures
During Friday’s Asian trading session the Pound suffered a flash crash, slumping sharply across the board in response to an apparent ‘fat finger’ trade. Although Sterling was quick to recover from its lows it nevertheless remained on a notably weaker footing with politicians on both sides of the Channel taking a hard line on Brexit negotiations. While GBP exchange rates have been increasingly divorced from domestic data in recent weeks the Pound could find a fresh rallying point on the upcoming RICS House Price Balance report. If the UK economy continues to demonstrate signs of resilience then investors may be encouraged to buy back into the softened currency.
GBP/USD – Speculation Over Hard Brexit Prospects to Weigh on Pound
Demand for Sterling recovered markedly on Wednesday morning, following the news that the Prime Minister will allow Parliament to debate the terms of Brexit before Article 50 is triggered. As this suggested that the government’s recent push towards a hard exit could be reined in, the appeal of the Pound naturally improved. Even so, sentiment surrounding the Brexit issue remains decidedly fragile, and any indications that single market access could be lost are expected to dent the GBP/USD exchange rate further. Commentary from politicians is likely to remain the primary influence on Sterling for the foreseeable future.
USD/GBP – Odds of 2016 Fed Rate Hike Predicted to Rise on Stronger Sales Data
Confidence in the US Dollar took a hit when September’s Non-Farm Payrolls report surprised to the downside, with the unemployment rate unexpectedly rising. This damaged the odds of an imminent Federal Reserve interest rate hike, although increasing optimism over the outcome of the US presidential election soon boosted the ‘Greenback’. The USD/GBP exchange rate could be encouraged to climb to fresh 31-year highs if Friday’s Advance Retail Sales prove encouraging. Further signs of robustness within the world’s largest economy are likely to increase the odds of a 2016 rate hike, something that should see investors continue to pile into the US Dollar.
EUR/USD – Prospect of ECB Easing Could Dampen Euro Appeal
Worries over the Greek bailout program had weighed on the Euro early in the week, prompting a modest rally once Eurogroup ministers approved the latest tranche of funds. Data from the Eurozone has also proved generally encouraging, with signs continuing to point towards a rapid recovery from the initial shock of the Brexit vote. Even so, with domestic inflationary pressure still relatively weak, investors are not discounting the possibility of the European Central Bank (ECB) extending its quantitative easing program in December. With the ‘Greenback’ on a bullish trend it seems likely that the EUR/USD exchange rate will remain under pressure in the near-term.