GBP/EUR – UK Cabinet Spat Rumours Weighed on Pound
Rumours that Chancellor of the Exchequer Philip Hammond could be considering resignation put severe downward pressure on the Pound at the start of the week. Signs of growing division within the Cabinet have not helped to ease market concerns over Brexit, with the shape of the UK’s future outside the EU still far from clear. Political developments are expected to remain the primary influence on the Pound for the foreseeable future, with Sterling movement seemingly decoupled from domestic data. Even so, if Thursday’s retail sales data points towards a weakening in consumer confidence then the GBP/EUR exchange rate could see further softness.
GBP/USD – Sterling Softness Forecast on High Government Borrowing
An upside surprise in September’s UK inflation rate encouraged investors to pile back into the Pound on Tuesday, though, with the increase suggesting that the Bank of England (BoE) is less likely to cut interest rates again imminently. Demand for Sterling was also boosted by the news that jobless claims had not risen as far as forecast in September, seeming to indicate a more limited Brexit impact on the labour market. The latest public sector net borrowing data could undermine the GBP/USD exchange rate, as a higher level of borrowing is likely to trigger fresh worries over the UK’s wide deficit.
USD/GBP – Market Anxiety over US Election Eases
The apparently declining odds of Donald Trump winning the presidential race have helped to boost the ‘Greenback’, despite somewhat mixed messages coming from the Federal Reserve. Hopes still remain high that the central bank will raise interest rates in December, even if the pace of monetary tightening seems likely to remain slow over the long term. Nevertheless, investors will be looking for further evidence to support calls for an imminent rate hike, with any signs of economic weakness likely to weigh heavily on the US Dollar. Should September’s leading index point towards stronger domestic growth, however, the USD/GBP exchange rate is likely to extend its recent gains.
EUR/USD – Less Dovish ECB to Boost Euro Strength
Confidence in the single currency has been a little more muted over the last week, with a think tank having raised the prospect of a fourth Greek bailout and the integrity of the currency union still in question. Despite Eurozone inflation having been confirmed to have risen modestly in September, the odds of the European Central Bank (ECB) tapering its quantitative easing program in the near future remain slim. Even so, if policymakers express a more hawkish outlook at Thursday’s policy meeting then the Euro could find some support against rivals, providing that the prospect of further easing is dismissed.