GBP/EUR – Sterling Jittery with Progress Towards Article 50 Trigger
As the government’s Article 50 bill entered Parliament, sentiment towards the Pound saw some sharp moves, with investors jittery that the bill could pass without any significant amendments. Even so, the increased clarity over Theresa May’s timetable for starting formal exit proceedings offered encouragement to Sterling, particularly given the promise of a white paper on the government’s approach to Brexit. If progress towards the activation of Article 50 remains smooth, however, GBP exchange rates should remain supported in the near term. That being said, if the promised white paper reaffirms that government’s hard line on Brexit this could put renewed pressure on Sterling.
GBP/USD – Rising Inflation Could Boost Odds of BoE Rate Hike
While January’s UK Manufacturing PMI flagged up a sharp increase in input prices, the largest such move since the survey began, this did not particularly weigh on the Pound. This was in part due to the relative resilience of the manufacturing sector, as well as hopes that a faster rise in inflationary pressure could prompt action from the Bank of England (BoE). As a result volatility should be expected for the GBP/USD exchange rate in response to Thursday’s BoE policy meeting and the accompanying release of the Bank’s latest Inflation Report. If Governor Mark Carney takes a more hawkish tone in comments to the press the Pound may find a fresh rallying point.
USD/GBP – Political Developments Remain Key Dollar Driver
It has been a rather turbulent week for the US Dollar, which has been largely at the mercy of domestic political developments. Donald Trump’s heavily condemned travel ban put a serious dampener on investor sentiment, particularly as the new administration continued to demonstrate a protectionist outlook. Further volatility is likely to occur in response to the Federal Open Market Committee’s (FOMC) first policy meeting of 2017, with markets looking for any indication as to the likely timing of the next interest rate hike. Also in focus will be the latest Non-Farm Payrolls report, which could offer evidence of a resilient labour market.
EUR/USD – Euro May Benefit From ECB Tightening Hopes
Unexpectedly strong Eurozone employment, inflation and growth data increased speculation that the European Central Bank (ECB) could be prompted to raise interest rates sooner rather than later, to the benefit of the single currency. However, worries over Greece have been hampering the strength of the Euro once again as the ongoing deadlock with creditors shows no sign of ending. Any more optimistic comments in the ECB’s latest Economic Bulletin could boost the appeal of the common currency, even if the odds of the central bank tightening monetary policy in the near future remain slim.