GBP/EUR – May Speech Weighs on Pound
Confidence in the Pound weakened markedly in response to Theresa May’s fraught Conservative Party conference speech, with investors unimpressed by the Prime Minister’s performance. With some still questioning May’s position there are concerns that the UK is likely to remain under a cloud of political uncertainty for some time to come.
Given the continued lack of significant progress on Brexit negotiations the outlook for Sterling remains relatively bearish. Unless markets see greater cause for optimism and signs of greater cohesion within the Tory ranks then GBP exchange rates could struggle to find any real traction.
GBP/USD – BoE Commentary in Focus
A surprisingly weak UK construction PMI weighed on the Pound, with the index falling from 51.1 to 48.1 as the sector edged back into contraction territory.
This gave investors little reason to favour GBP exchange rates on Tuesday, suggesting that the domestic economy remains under pressure as Brexit-based uncertainty persists. Even so, the mood towards the Pound could improve ahead of the weekend if the latest commentary from Bank of England (BoE) policymakers proves positive. Further signals that the central bank is on track to raise interest rates in the near future could shore up Sterling.
USD/GBP – Weak Labour Market Data Could Dent US Dollar
Although the ISM manufacturing and non-manufacturing composite indexes both bettered expectations in September this failed to keep the US Dollar on a bullish run.
With markets already having priced in relatively high odds of the Federal Reserve raising interest rates again before the end of the year the upside potential of USD exchange rates has been relatively limited.
As a result the ‘Greenback’ remains vulnerable to downside pressure, particularly if Friday’s raft of labour market data disappoints. Unless wage growth continues to pick up solidly then the case for an imminent Fed rate hike could weaken, to the detriment of the US Dollar.
EUR/USD – Catalan Independence Worries Limit Euro Appeal
Mounting tensions between Spain and Catalonia have weighed heavily on the single currency, with markets jittery over the prospect of an imminent unilateral declaration of independence. As the potential for further violence remains the region looks set to stay locked in a state of political instability.
However, commentary from European Central Bank (ECB) policymakers could help to support demand for the Euro in the coming days.
Any indications that the central bank is taking a more hawkish view on monetary policy may offer the EUR USD exchange rate a boost, suggesting that imminent tapering of the quantitative easing program is more likely.