GBP/EUR – BoE Meeting Minutes Expected to Provoke GBP Volatility
The Pound experienced some major volatility at the start of the week, thanks to speculation over the future of Bank of England (BoE) Governor Mark Carney. Although there was some relief amongst investors when Carney was revealed to have extended his term until June 2019 Sterling soon returned to a downtrend. While there are no expectations for the BoE to lower interest rates on Thursday, the tone of the meeting minutes could weigh heavily on the Pound. If policymakers leave the door open for further policy easing in December then the GBP/EUR exchange rate looks set to remain on a weaker trend.
GBP/USD – Pound Could Rally on Solid Services PMI
Although the UK Manufacturing PMI for October fell short of forecasts this was contrasted by an unexpected uptick in the corresponding Construction PMI. As both remained in a state of growth this offered some encouragement towards the outlook of the domestic economy, despite signs pointing to rising price pressures. Greater Sterling volatility is likely to occur in response to the October Services PMI given that the majority of the UK’s economic activity is generated by this sector. If the measure points towards continued robustness then the Pound could find a stronger rallying point, as this would suggest that the economy got off to a relatively solid start in the fourth quarter.
USD/GBP – Strong Jobs Report Predicted to Boost 2016 Fed Rate Hike Odds
With less than a week to go until the results of the US presidential election are known, investors have been taking an increasingly cautious view of the ‘Greenback’. As the polls have shown a narrowing of the gap between Hilary Clinton and Donald Trump markets have been inclined to price in higher odds of a victory for the Republican candidate. Political risk has largely overshadowed anticipation of the latest Federal Open Market Committee (FOMC) policy meeting and Non-Farm Payrolls report, though the US Dollar may find some support if the message proves more hawkish. Should the US labour market have remained robust in October this would offer greater incentive for the Fed to raise interest rates in 2016.
EUR/USD – ECB Easing Worries Hampering Euro Strength
Despite some positive Eurozone data the EUR/USD exchange rate has been primarily shored up by the weakness of the US Dollar. Although the German unemployment rate showed a surprise fall in October, investors are continuing to price in the likelihood of the European Central Bank (ECB) extending its quantitative easing program in December. If the latest Eurozone Producer Price Index shows an improvement, however, the Euro could enter a bullish trend. Any increase in producer prices bodes well for a corresponding increase in the Consumer Price Index, with higher levels of inflation likely to ease the minds of policymakers.