GBP/EUR – Pound Volatile as BoE Proves Divided
There have been increasing signs of a split within the Bank of England (BoE) after chief economist Andy Haldane made unexpectedly hawkish noises. This encouraged speculation that August’s policy meeting could see an increased shift towards a tightening bias, setting the Pound on a bullish run. However, as both Governor Mark Carney and Deputy Governor Jon Cunliffe have maintained a more cautious policy outlook Sterling struggled to hold onto its gains for long. Even so, if policymakers continue to demonstrate a divided opinion further volatility can be expected for GBP exchange rates.
GBP/USD – Pound Hits 3-Week High US Growth Forecasts Downgraded
The Pound was able to climb to a 3-week high earlier in the week as the International Monetary Fund (IMF) slashed its US growth forecasts for 2017 and 2018. Positive signs from the UK housing market also offered some support to the Pound, meanwhile, as prices were found to have risen 1.1% on the month in June. With the sense of political uncertainty easing in the wake of the Conservatives finalising a confidence and supply arrangement with the controversial Democratic Unionist Party (DUP) some of Sterling’s downside bias has faded. Worries over the health of the UK economy could see a resurgence, though, if the latest net consumer credit and mortgage approvals figures fail to impress. As strong levels of consumer spending have helped to drive activity in recent months signs of weaker lending could undermine the appeal of the Pound.
USD/GBP – Mixed US Data Continues to Weigh on USD
The latest US PMIs and durable goods orders data added to the bearish mood of the ‘Greenback’, offering further evidence that the world’s largest economy is in a less robust state of health. As Federal Reserve policymakers have proven rather divided on the need to raise interest rates again in the near future demand for the US Dollar has remained volatile. Although US consumer confidence strengthened sharply in June USD exchange rates struggled to capitalise on this stronger showing. If Friday’s personal consumption expenditure data shows a weakening in domestic inflation, though, the US Dollar could see a fresh slump.
EUR/USD – Less Dovish Draghi Boosts Euro
Comments from European Central Bank (ECB) President Mario Draghi encouraged the Euro to trend higher across the board this week. While Draghi did not take an overly hawkish view on monetary policy the slight shift in rhetoric and change in wording regarding the degree of necessary stimulus boosted the appeal of the single currency. However, bets that the ECB could return to a tightening bias in the coming months could weaken once again if the latest German consumer price index report proves disappointing. Any moderation in inflationary pressure is likely to reduce the impetus for policymakers to change their outlook, limiting the upside potential of EUR exchange rates.