GBP/EUR – Low Hopes for Progress in Latest Brexit Talks
Worries over Brexit continued to pressurise the Pound over the course of the week, with EU officials having taken little encouragement from the UK government’s various position papers. As the two sides returned to the negotiating table the prospect of any significant progress looked distinctly limited, with the sequencing of talks still proving a sticking point. Unless there are signs that all parties are moving towards agreement on at least some key issues GBP exchange rates are likely to remain biased to the downside. If relations between the UK and EU negotiators are seen to sour this could create further market jitters, casting a greater shadow over the domestic outlook.
GBP/USD – Slower Rise in Consumer Credit Boosted Pound
Investors greeted July’s smaller-than-expected uptick in UK consumer credit, which came in at 1.2 billion rather than 1.5 billion. This weaker showing is likely to have encouraged Bank of England (BoE) policymakers, who have previously sounded warnings over the increasing reliance on credit within the domestic economy. While the odds of any monetary tightening remain slim this was nevertheless enough to offer the Pound a boost on Wednesday morning. Further volatility is likely for Sterling on the back of August’s UK PMIs, particularly if growth shows more signs of slowing in the third quarter.
USD/GBP – Bullish Payrolls Data May Encourage Fed Rate Hike Bets
Fed Chair Janet Yellen failed to galvanise any fresh support for the US Dollar, giving no indication that the Federal Reserve is in any hurry to raise interest rates again. A renewed escalation in tensions between the US and North Korea weighed on the ‘Greenback’ at the start of the week, with safe-haven demand offering no real support to USD exchange rates. With markets still sceptical over the chances of the Trump administration delivering on its promised tax reforms and the damage from Hurricane Harvey still coming in the upside potential of the US Dollar has been limited. Even so, a strong showing from the latest non-farm payrolls report could still prompt a bullish run for the ‘Greenback’.
EUR/USD – Euro to Benefit from Rising Inflation
Although European Central Bank (ECB) President Mario Draghi offered no fresh commentary on monetary policy in his Jackson Hole speech this was not enough to prevent the Euro from rallying sharply. Markets were encouraged by his lack of fresh cautions on the subject of Euro strength, giving EUR exchange rates a solid boost. However, the single currency may struggle to hold onto its recent gains if August’s Eurozone consumer price index fails to show a fresh uptick in inflationary pressure. Unless inflation across the currency union continues to pick up the likelihood of any imminent tapering of the ECB’s quantitative easing program looks set to fade, putting renewed pressure on the Euro.