GBP/EUR – Brexit Developments Dominate GBP Outlook
It was a volatile few days for the Pound, with Article 50 finally triggered and the official Brexit process underway. As UK and EU politicians are already at odds over the order of negotiations, concerns over the prospect of an exit via the cliff edge intensified. Although actual talks are not set to start for some weeks, political developments look set to dominate the outlook of GBP exchange rates for the foreseeable future. If the matter of a second Scottish referendum continues to raise domestic tensions then the Pound could come under renewed downside pressure. However, if the rhetoric from both sides of the Channel is seen to turn softer this could offer support to Sterling.
GBP/USD –Resilient Consumer Sentiment Could Support Pound
As UK retail sales were found to have rebounded strongly in February this encouraged confidence in the resilience of the domestic economy. Although consumers are likely to come under pressure in the coming months this stronger showing boosted bets that the Bank of England (BoE) will turn hawkish. However, both the latest GfK consumer confidence index and Nationwide house price data are expected to point towards a weakening in sentiment. If domestic data fails to maintain a positive outlook this would encourage investors to sell out of the Pound, eroding its underlying support.
USD/GBP – Political Worries Limited US Dollar Demand
After the US administration failed to push through its new healthcare bill the US Dollar slumped sharply across the board. Investors were discouraged by the failure, raising doubts that promised tax cuts and infrastructure spending could materialise as markets hope. Even so, with market risk appetite generally limited it was not long before the ‘Greenback’ returned to a stronger footing. An unexpectedly strong consumer confidence figure also boosted demand for the US Dollar, indicating that the underlying fundamentals of the economy remain robust. If next week’s manufacturing and service sector data proves encouraging the ‘Greenback’ could return to a bullish trend.
EUR/USD – Euro Struggled to Capitalise on Surprisingly Hawkish ECB
There was some unexpectedly hawkish commentary from members of the European Central Bank (ECB) executive board this week. Sabine Lautenschläger noted that markets should ‘prepare for a change’ in monetary policy, encouraging speculation that the quantitative easing program could be tapered sooner than previously anticipated. However, the prospect of tighter policy remains somewhat distant. Any signs of weakening inflationary pressure within the Eurozone could undermine confidence in the ECB’s ability to tighten and limit demand for the single currency. On the other hand EUR exchange rates could benefit from increased optimism over the likely outcome of the French presidential election.