GBP/EUR – Sterling Weakened as PMIs Disappointed
June’s raft of UK PMIs all proved discouraging, pointing towards a loss of momentum within the domestic economy in the wake of the general election.
This gave investors little reason to favour the Pound over its rivals, particularly as domestic productivity was also found to have contracted -0.5% in the first quarter.
None of this encouraged confidence in the outlook for the UK economy, especially as Brexit uncertainty looks set to weigh on sentiment for the foreseeable future.
Any signs of increased political tension or a deterioration in relations with EU negotiators could extend Sterling’s recent losses further.
GBP/USD – Odds of BoE Rate Hike Fluctuate
Speculation has continued to rage over the policy outlook of the Bank of England (BoE), with members of the Monetary Policy Committee (MPC) demonstrating differing viewpoints. However, despite the persistent hawkishness of some policymakers the likelihood of any imminent interest rate hike remains limited.
Weaker domestic data has undermined the case for the BoE to return to a tightening bias and any downside disappointment from the latest trade balance data could lower the odds further.
If the NIESR gross domestic product estimate points towards a continued slowdown in growth the mood towards the Pound is likely to remain generally sour.
USD/GBP – Stronger US Data Boosted Dollar Demand
An unexpectedly positive ISM manufacturing index helped to boost confidence in the underlying strength of the US economy, shoring up the ‘Greenback’. This bullish mood could strengthen further if the latest Federal Open Market Committee (FOMC) meeting minutes indicate that policymakers are prepared to raise interest rates again imminently. However, if the tone of the minutes proves more cautious this could dent the appeal of the US Dollar. Further volatility is likely in response to Friday’s raft of US labour market data, with any strengthening in wage growth expected to encourage greater policymaker hawkishness.
EUR/USD – Greek Bailout in Jeopardy Once Again
Worries over Greece continued to put a dampener on the Euro this week, as creditors unexpectedly delayed the disbursement of the next tranche of bailout funds. With a major repayment deadline on the horizon there are concerns that the Eurozone crisis could see another resurgence, especially with the Greek government under increasing domestic pressure. As the European Central Bank (ECB) has tried to downplay the prospect of any potential tapering of the quantitative easing program the Euro may weaken further in response to its June meeting minutes. If policymakers are shown to be taking a less optimistic view of the domestic outlook this could weigh heavily on EUR exchange rates.