GBP/EUR – Sterling Could Slide on Disappointing Autumn Statement
Despite a Donald Trump presidency being seen to improve the chances of a fast-tracked US-UK trade deal, worries over the Brexit issue have continued putting pressure on the Pound. Markets were spooked by a circulated memo which claimed the government has ‘no plan’ on the matter, a prospect which naturally bodes ill for the domestic economy. Concerns could mount further ahead of Chancellor of the Exchequer Philip Hammond’s Autumn Statement, which may not include the level of fiscal stimulus that markets hope for. If investors are disappointed by the latest budget then the Pound is likely to fall further out of favour.
GBP/USD – Weaker UK Inflation Prompted Pound Softness
Contrary to expectations, the UK Consumer Price Index was found to have weakened in October in spite of producer prices showing a sharp jump. While inflationary pressure is still expected to spike in the coming months, this temporary dip was seen to reduce the odds of the Bank of England (BoE) returning to a tightening cycle sooner rather than later. Even so, if October’s retail sales data points towards a high level of consumer confidence then Sterling is likely to find a fresh rallying point. As long as the impact of Brexit-based uncertainty continues to be shrugged off by the domestic economy the GBP/USD exchange rate could return to a bullish trend.
USD/GBP – Political Uncertainty and Volatility Characterise Dollar Movement
Markets adjusted remarkably rapidly to the shock election victory of Donald Trump, allowing the US Dollar to quickly claw back its initial losses. Thanks to Trump’s pledges of infrastructure investment and tax cuts, the odds of an imminent Federal Reserve interest rate hike were seen to improve, offering extra support to the ‘Greenback’. However, as the ultimate policies of the President Elect remain unclear the appeal of the US Dollar remains decidedly vulnerable to downside pressure. If the latest US Consumer Price Index points towards an increase in inflation however the USD/GBP exchange rate could benefit.
EUR/USD – ECB Easing Speculation Drives Down Euro Demand
Although third quarter German GDP fell short of forecast this failed to particularly dent the Euro, in large part thanks to the continued volatility of markets. Weaker growth in the Eurozone’s powerhouse economy was also contrasted by a better-than-expected Italian figure, offering some cause for confidence in the outlook of the currency union. Markets have been speculating once again about the possibility of the European Central Bank (ECB) extending its quantitative easing program in December. Should upcoming comments from ECB President Mario Draghi adopt a more dovish tone, potentially signalling further easing, the Euro could be driven lower across the board.