GBP/EUR – Odds of August BoE Rate Hike Plunge
As recent UK data proved almost universally disappointing, investors were prompted to take a bleaker view of the outlook of the domestic economy, although markets still continued to speculate over the possibility of an imminent return to tighter monetary policy.
This created volatility as Bank of England (BoE) deputy governor Ben Broadbent made his first comments since June’s unexpectedly split policy meeting on Tuesday.
The chances of an August interest rate hike diminished sharply as Broadbent ultimately maintained his ‘wait and see’ outlook, prompting a Pound slump.
If the message of the BoE’s credit conditions and bank liabilities surveys sounds a similar note of caution, GBP exchange rates could struggle to find any support ahead of the weekend.
GBP/USD – Weak Wage Growth Failed to Hamper Pound
Some support for Sterling came on the back of an unexpected dip in the ILO unemployment rate in the three months to May, indicating that the domestic labour market has continued to tighten.
While wage growth remains well below the current level of inflationary pressure, this failed to particularly weigh on the minds of investors, with bets of an imminent BoE rate hike already diminished. But if the RICS house price balance points towards a continued loss of momentum within the housing market, this could prompt a fresh downtrend for GBP exchange rates.
Worries over Brexit negotiations and the fragile domestic political balance are also likely to limit any Pound strength for some time to come.
USD/GBP – US Dollar Bullish After Unemployment Falls
Even though the latest US wage growth figures proved weaker than forecast the US Dollar remained on a generally stronger footing.
Markets were instead encouraged by the bullish non-farm payrolls headline figure, with the labour market continuing to demonstrate signs of tightening.
Nevertheless, as the controversy surrounding the Trump presidential campaign began to flare up once again, confidence in the administration’s capacity to deliver on policy promises remains limited.
Commentary from Fed Chair Janet Yellen is expected to prompt further volatility for the ‘Greenback’, with fresh gains likely if she maintains a more hawkish viewpoint.
EUR/USD – Prospective Return of Greek Bonds Boosts Euro
News that Greece had not only received its next tranche of bailout funds but is intending to return to the bond market soon prompted the Euro to strengthen across the board.
Even though the issue of debt relief is still far from resolved confidence in the outlook of the currency union has nevertheless picked up.
However, as the latest German wholesale price index pointed towards a continued decline in inflationary pressure the chances of the European Central Bank (ECB) tightening monetary policy in the coming months diminished further.
But if the Eurozone trade surplus is found to have widened further in May, this could keep the Euro from coming under too much downside pressure.