GBP/EUR – Slowing UK Growth Forecast to Dent Sterling
UK retail sales disappointed in September, suggesting that consumer demand has begun to weaken even before higher inflation feeds through into the wider economy. Coupled with a sharp increase in new government debt, this news encouraged Pound losses. Further Pound Sterling volatility is expected in response to the third quarter UK GDP report, the first major gauge of the post-referendum economy. Should growth be found to have slowed further than forecast the GBP/EUR exchange rate is likely to slump sharply.
GBP/USD – Brexit Uncertainty & Fed Rate Hike Bets Keep ‘Cable’ Pressured
Comments from Chancellor of the Exchequer Philip Hammond failed to encourage greater support for the Pound this week, despite a pledge to keep the City at the heart of Brexit negotiations. Markets remain concerned that the UK is more likely to experience a hard exit, keeping GBP exchange rates biased to the downside. The appeal of Sterling could deteriorate further in coming days if domestic data does not point towards greater economic robustness, with expectations not overly high for the next raft of PMIs. If data continues to disappoint then the GBP/USD exchange rate could slip below further psychological support levels. The growing odds of the Federal Reserve hiking borrowing costs in December are also keeping ‘Cable’ close to 31-year lows.
USD/GBP – US GDP Could Shore up US Dollar
Commentary from members of the Federal Open Market Committee (FOMC) has proven rather less hawkish than investors would like, despite the odds of a December interest rate hike rising. The suggestion that the pace of monetary tightening is likely to remain slow for the foreseeable future undermined the appeal of the US Dollar, particularly as consumer confidence data disappointed. However, hopes are high for the third quarter US GDP, which could boost the chances of an imminent rate hike further. A stronger showing here would go a long way to diminishing worries over the economic outlook, indicating that the world’s largest economy remains robust.
EUR/USD – Higher German Inflation Predicted to Boost Euro
As dissention within Belgian politics saw the signing of the EU-Canada free-trade deal thrown into jeopardy, the Euro struggled to gain traction against rivals. Although German business confidence strengthened and import prices continued to improve this only offered a limited boost to the EUR/USD exchange rate. Investors are likely to remain a little cautious towards the single currency ahead of October’s German Consumer Price Index report, which could show that inflationary pressure ticked higher on the year. Further improvement in the inflation outlook should encourage greater Euro demand, limiting the impetus for the European Central Bank (ECB) to ease monetary policy.