GBP/EUR – Lack of Brexit Clarity Limits Sterling Appeal
A page of leaked government notes on Brexit failed to do much to weigh down the Pound, despite these appearing to point towards the UK losing its access to the single market. Investors were more inclined to focus on positive consumer credit and mortgage approvals figures, which together suggested that the domestic economy remains robust in spite of uncertainty. Should the Nationwide house price index also indicate continued strength in the housing market then the appeal of Sterling could pick up further. However, the lack of a concrete government Brexit plan is likely to limit the upside potential of the Pound for the foreseeable future.
GBP/USD – Pound May Struggle Following Recent Gains
The Bank of England’s (BoE) latest Financial Stability Report offered a fresh warning over the potential impact of a disorderly Brexit on the UK economy. Even though the financial system has so far held up well under post-referendum uncertainty, Governor Mark Carney highlighted the need for firms to have greater clarity in order to better navigate the challenge ahead. Expectations are not particularly high for November’s raft of UK PMIs though, which could put additional pressure on the Pound. If economic activity shows signs of faltering then the GBP/USD exchange rate is expected to extend its downtrend.
USD/GBP – US Dollar Predicted to Strengthen on Solid Labour Market Figures
The earlier momentum of the US Dollar started easing last week, particularly as the impact of an imminent Fed rate hike has already been priced into the currency. However, as US consumer confidence jumped markedly in November, the signs from the world’s largest economy have remained generally encouraging. The latest Non-Farm Payrolls report could offer the USD/GBP exchange rate further support, providing that the number of those entering employment remains robust. Anything short of a severe downside surprise here looks likely to cement the prospect of a December rate hike further.
EUR/USD – Weaker German Manufacturing PMI Could Dent Euro Outlook
There was no surprise from the Eurozone Consumer Price Index for November, which showed the forecast modest uptick in inflationary pressure. This offered some support to the Euro, although confidence in the single currency remained generally muted in anticipation of Sunday’s Italian constitutional referendum. Additionally, the finalised raft of Eurozone PMIs for November are not expected to encourage demand for the Euro, with the German manufacturing sector forecast to be confirmed as having lost further momentum. Concerns over the stability of the currency union are likely to continue to limit the appeal of EUR exchange rates, particularly if hopes of debt relief for Greece are dashed.