GBP/EUR Down from Four-Month High as BoE Rate Hike Failed to Encourage Markets
Although the Bank of England (BoE) opted to raise interest rates for the first time in a decade this failed to lend Pound Sterling exchange rates much support last week and GBP/EUR fell from a four-month high.
Investors were more concerned by the relatively dovish tone of the accompanying meeting minutes, which suggested that this was not the start of a true monetary tightening cycle as had been hoped.
This left GBP exchange rates on a sharp slump, mitigating the positive impact of a better-than-expected UK services PMI.
Political developments have also put pressure on Sterling in recent days, with the minority Conservative government facing a number of scandals.
If Theresa May’s position is seen to weaken further this is likely to prompt additional GBP weakness, especially if there are no significant signs of progress in the latest round of Brexit negotiations.
Pound US Dollar Exchange Rate Struggles as UK Consumers Rein in Spending
The Pound to US Dollar (GBP/USD) exchange rate came under pressure as sharp contractions in October’s new car registration and BRC like-for-like sales figures demonstrated the continued vulnerability of the UK economy.
With the wage squeeze set to persist in the coming months, consumers showed fresh signs of tightening their belts, boding ill for the overall growth outlook.
Nevertheless, the Pound could find a rallying point ahead of the weekend if the NIESR gross domestic product estimate for the three months to October proves positive.
Evidence that economic growth is continuing to recover momentum, in spite of the persistent uncertainty of Brexit, should prompt GBP exchange rates to return to a stronger footing.
This would give the BoE cause to consider raising interest rates again sooner rather than later, something which markets would greet positively.
Labour Market Rebound Shores up USD/GBP
October’s labour market data showed a solid rebound from the hurricane season, encouraging USD exchange rates to strengthen as the unemployment rate fell once again.
The announcement that New York Fed president William Dudley will be retiring early prompted some jitters for the US Dollar, though.
Dudley’s departure adds to the shake-up of the Federal Open Market Committee (FOMC), with a number of key positions already set to switch hands in the coming year.
However, markets remain confident that the Federal Reserve will deliver a much-anticipated interest rate hike in December, preventing any significant sell-off for USD exchange rates.
If domestic data continues to paint an encouraging picture of the US economy, the ‘Greenback’ is likely to remain biased to the upside, with nothing short of a major upset likely to derail the prospect of an imminent rate hike.
Mixed Eurozone Data Limits EUR/USD Strength
Eurozone data has proven distinctly mixed this week, with surging German factory order figures contrasting with a disappointing raft of Eurozone retail PMIs.
This has prompted some sharp volatility for EUR exchange rates, limiting confidence in the outlook of the domestic economy.
Commentary from European Central Bank (ECB) President Mario Draghi also failed to encourage greater demand for the single currency, with the policymaker reiterating his dovish stance on monetary policy.
ECB caution is likely to keep the Euro on a softer footing in the near term, with the latest Economic Bulletin expected to echo Draghi’s dovishness.
Even so, a widening of September’s German trade surplus could limit the downside potential of the single currency.
So long as the Eurozone’s powerhouse economy continues to demonstrate signs of strength, this should prevent any major bout of Euro bearishness.
Data Released This Week
9th November 07:00 EUR German Trade Balance (SEP)
9th November 09:00 EUR ECB Publishes Economic Bulletin
10th November 09:30 GBP Visible Trade Balance (SEP)
10th November 13:00 GBP NIESR Gross Domestic Product Estimate (OCT)
10th November 15:00 USD University of Michigan Confidence Index (NOV P)