GBP/EUR – Brexit Jitters Weigh on Sterling
Reaction to the Supreme Court hearing of the government’s Article 50 appeal has been relatively limited given that the verdict will not be known for some time yet. Even so, Brexit-based speculation helped to drive the Pound higher thanks to ongoing speculation that the UK could pay to maintain its privileged access to the single market. With the government under pressure to reveal more of its strategy regarding the exit negotiations, Sterling is likely to remain sensitive to any developments in the debate. Should the prospect of a hard Brexit be seen to increase then the GBP/EUR exchange rate could extend its recent downtrend further.
GBP/USD – Pound Weakness Forecast on Widened Trade Deficit
Confidence in the UK economy was undermined by an unexpected contraction in industrial and manufacturing production in October, something that ran counter to recent PMIs. The latest NIESR Gross Domestic Product estimate didn’t do anything to encourage investors to buy back into the Pound, pointing towards flat growth. With warnings that GDP is likely to weaken in the coming months, thanks to lower consumer spending, the outlook for the UK economy does not appear particularly encouraging. If Friday’s trade balance figures show a widening of the deficit then the Pound is expected to remain soft.
USD/GBP – Mixed US Data Failed to Diminish Greenback
With an imminent interest rate hike from the Federal Reserve already priced into the US Dollar, it’s upside potential has been somewhat limited. Confidence in the world’s largest economy was dented by disappointing productivity data, even though other domestic ecostats continued painting a more positive picture. While expectations of the Fed returning to its monetary tightening cycle are unlikely to particularly waver the ‘Greenback’ could find some additional support in December’s University of Michigan Confidence Index. Forecasts point towards a further improvement in domestic sentiment, something which would underline a more positive outlook for the US economy.
EUR/USD – Italian Banking Sector Worries Dominate Euro Outlook
Markets had widely anticipated that Italian Prime Minister Matteo Renzi would suffer a defeat in his referendum on proposed constitutional reforms, and the Euro accordingly enjoyed a rapid recovery in the wake of the ‘No’ vote. This nevertheless triggered fresh concerns over the future of Italy’s banking sector, leaving the single currency in a relatively volatile state. If hopes fade that the recapitalisation of Monte dei Paschi and other vulnerable banks could still be facilitated then the EUR/USD exchange rate could shed further value. Also in focus will be the tone of policymakers at the European Central Bank’s December policy meeting, where an extension of the quantitative easing program is expected to be announced.