GBP/EUR – BoE Governor Maintains Neutral Policy Outlook
While the Pound was boosted by the unexpectedly split Bank of England (BoE) vote on interest rates, the impact of this surprising hawkish development ultimately proved short-lived. Comments from Governor Mark Carney prompted GBP exchange rates to slump on Tuesday, with the policymaker reiterating his view that interest rates will not rise for some time yet. Although the formal start of Brexit negotiations got off to a relatively positive start this week Sterling remained biased to the downside. Investors are still wary of the potential for talks to turn icy in the coming weeks and months, especially if the minority Conservative government continues to take a hard line of rhetoric on the matter.
GBP/USD – Weaker CBI Orders Could Dent Sterling Demand
As the Conservatives have struggled to finalise a confidence and supply arrangement with the controversial Democratic Unionist Party (DUP) Sterling has struggled to shake off a sense of political instability. This could weigh heavily on the outlook of the UK economy, even though May’s public sector net borrowing figure proved better than forecast on Wednesday. However, the latest CBI trends data is expected to offer fresh evidence of slowing economic activity. A weaker showing here could increase the downside pressure on GBP exchange rates, giving the BoE further encouragement to leave interest rates on hold.
USD/GBP – US Dollar Remains Under Pressure from Mixed Data
While the Federal Reserve proved a little more hawkish than anticipated at its June policy meeting, the US Dollar struggled to maintain any particular bullish momentum in its wake. Subsequent commentary from Fed policymakers and the disappointing nature of recent US data have eroded the odds of another interest rate hike coming before the end of the year. However, if the latest jobless claims figures point towards continued tightness within the labour market this could offer the ‘Greenback’ a boost across the board. On the other hand, signs of weakness from the domestic housing market could undermine confidence in the underlying health of the world’s largest economy.
EUR/USD – Record Low French Election Turnout Limited Euro Upside
As the fledgling centrist La République En Marche party secured a landslide victory in the French parliamentary elections the mood towards the Euro improved. However, the gains of EUR exchange rates were somewhat limited by the fact that the election saw a record low level of turnout. This gave President Macron a less sweeping mandate than markets had hoped for, although the single currency still strengthened. Even so, demand for the Euro could soften in the coming days as the European Central Bank (ECB) still looks set to leave monetary policy on hold for the foreseeable future. If June’s raft of Eurozone PMIs prove better-than-expected, though, the single currency may be able to extend its recent gains.