GBP/EUR – Hopes for Softer Form of Brexit Remain Volatile
Confidence in the Pound was dented as the NIESR gross domestic product estimate for the three months to July pointed towards a sustained loss of momentum within the economy. Coupled with a surprise widening of the trade deficit this gave investors little reason to buy into Sterling. Brexit-based developments offered GBP exchange rates a temporary rallying point at the start of the week, though. A proposal was published which suggested that the UK could remain part of the customs union for an unspecified period after exiting the EU. While this boosted hopes for a softer form of Brexit the uncertainty surrounding negotiations looks set to persist for the foreseeable future, limiting the upside potential of the Pound.
GBP/USD – Stronger Wage Growth Shored up Pound
Sterling extended its losses against rivals after the UK consumer price index failed to tick higher as investors had anticipated on Tuesday. This seemed to diminish the likelihood of the Bank of England (BoE) taking a more hawkish outlook on monetary policy in the coming months. However, GBP exchange rates found a rallying point once average weekly earnings data showed an unexpected jump from 1.9% to 2.1%. While wage growth is still running significantly behind inflation this upside surprise was enough to boost the appeal of the Pound. If July’s retail sales figures offer further evidence of the negative impact of the squeeze on household finances, though, this could swiftly return Sterling to a downtrend.
USD/GBP – Fed Rate Hike Bets Support ‘Greenback’
Markets were somewhat disappointed when the US consumer price index failed to strengthen as far as forecast on Friday. Even so, as inflation still showed signs of an uptick in July the US Dollar was soon able to recover its losses. Comments from New York Fed President William Dudley encouraged a fresh bout of ‘Greenback’ bullishness, improving the chances of the Federal Reserve raising interest rates again before the end of the year. If the Fed’s July meeting minutes offer further evidence of a hawkish outlook this could prompt USD exchange rates to push still higher across the board. A strong showing from the latest University of Michigan consumer confidence index could also add to the appeal of the US Dollar.
EUR/USD – Euro Muted Ahead of ECB Minutes
The relative strength of the US Dollar weighed heavily on the EUR USD exchange rate during the last week, given the heightened state of global geopolitical tensions. However, confirmation that German inflation strengthened to 1.7% on the year in July offered the single currency some measure of support ahead of the weekend. Demand for the Euro still remained generally muted even after the second quarter Eurozone gross domestic product pointed towards an uptick in economic activity on the year, though. Further downside pressure could be in store on the back of the European Central Bank’s (ECB) latest monetary policy meeting minutes, with the odds of any imminent tapering of the quantitative easing program looking limited.