GBP/EUR – Brexit-Based Uncertainty Eased by May Speech
Comments from Theresa May to the CBI conference helped to boost the Pound this week, as the prospect of the ‘Brexit cliff edge’ was diminished. May’s promise of a transition deal encouraged investors, pushing Sterling higher across the board as some shred of uncertainty was removed. Even so, with no surprises expected from the second revision of the UK’s third quarter GDP data, the appeal of the Pound is likely to remain limited in the near term. Persistent uncertainty over the future of the UK economy could continue hampering GBP exchange rates for the foreseeable future.
GBP/USD – Dovish Budget Forecasts to Weigh on Pound Outlook
Reaction to Chancellor Philip Hammond’s Autumn Statement proved a little mixed, although the accompanying forecasts were decidedly bearish. With economic growth expected to slow over the coming years and productivity to be depressed by the process of Brexit, this did not offer much cause for confidence. However, if the initial impact of the referendum remains limited in upcoming housing data then the GBP/USD exchange rate could find some support. Bullish domestic data is likely to encourage some Pound gains, although any of these could well prove to be short-lived.
USD/GBP – High Pricing of Fed Rate Hike Could Limit Dollar Gains
Market expectations of a December interest rate hike from the Federal Reserve have risen further over the last week, with investors now pricing in a move as a near-certainty. This optimistic view was reinforced by a much stronger durable goods orders figure than expected, which rebounded from -0.3% to 4.8% in October. Anything short of a major downside data surprise or political development is unlikely to deter the Fed from returning to a monetary tightening cycle before the end of the year, which in turn should keep the ‘Greenback’ on a stronger footing. However, with an imminent interest rate move already priced into the US Dollar, any additional upside potential may be limited.
EUR/USD – Populist Worries Predicted to Hold Back Euro
The announcement that German Chancellor Angela Merkel will run for another term in office gave the Euro something of a boost at the start of the week. However, with the polls indicating that Italian Prime Minister Matteo Renzi remains on course to suffer defeat in his referendum on constitutional reforms, the appeal of the Euro may prove short-lived. As the German economy has been showing signs of slowness in recent weeks the single currency could also come under pressure from the latest business and consumer confidence surveys. Should these point towards a weakening in domestic sentiment then the EUR/USD exchange rate is expected to continue its downtrend.