GBP/EUR – Sharp Movements Seen on PM Brexit Speech
Pound exchange rates slumped sharply at the start of the week after reports emerged that the government was not looking to maintain membership of the single market in negotiations with the EU. However, this downtrend was soon reversed when Theresa May set out her broad aims for Brexit in her first major speech on the matter. Confirmation that Parliament will have a vote on the final deal and a greater degree of clarity on the government’s standpoint boosted Sterling dramatically, and the currency rose two cents against the Euro. The underlying bias of the Pound remains bearish, even so, as the ultimate outcome of negotiations remains to be seen. May’s stated willingness to leave without any deal could put pressure on Sterling in the coming months.
GBP/USD – Positive UK Data Boosts Confidence
Confidence in the robustness of the UK economy was lifted, meanwhile, by an unexpected uptick in average weekly earnings in the three months to November. This could encourage the Bank of England (BoE) to consider the prospect of an interest rate hike before the end of the year, although there are doubts over the continued momentum of the labour market. A stronger impression of the domestic economy could come from Friday’s retail sales figures, which are expected to show a marked increase of 7.5% on the year. While political developments and Brexit-based speculation are likely to remain the primary influence on the Pound, positive data could still offer investors incentive to favour the currency.
USD/GBP – Political Developments Dominate US Dollar Outlook
Market jitters have hampered the US Dollar ahead of the inauguration of Donald Trump, despite continued investor optimism regarding his economic plans for the US. Recent domestic data has proven somewhat underwhelming, with advance retail sales and the University of Michigan confidence index both having fallen short of forecasts. Even so, commentary from Fed Chair Janet Yellen could maintain the bullish underlying trend of the ‘Greenback’, providing that the policymaker takes a hawkish tone on monetary policy. If greater detail of Trump’s economic strategy emerges this could equally boost USD exchange rates, in spite of any ongoing political concerns.
EUR/USD – Dovish ECB Could Weigh on Euro
December’s European Central Bank (ECB) meeting minutes offered some support to the single currency, with increasing signs of hawkish dissent within the Governing Council. A greater-than-expected widening of the Eurozone trade surplus in November added to the bullish mood of the Euro, suggesting that the domestic economy remains in good health. However, this is not likely to prompt the ECB to move away from its easing bias in the near future. Any dovish commentary from the January meeting is expected to dent the EUR/USD exchange rate, particularly if the prospect of tapering the quantitative easing program is ruled out once again.