GBP/EUR Forecast: Pound Exchange Rates Gain on Signs of Agreement on Brexit Bill
Chancellor Philip Hammond’s Budget was something of a non-event last Wednesday, containing nothing that particularly excited or perturbed markets.
What did unsettle the Pound, however, were accompanying forecasts from the Office for Budget Responsibility (OBR) that predicted sluggish productivity and wage growth over the coming five years.
The Pound has today been pushed sharply higher after it emerged the EU and UK are getting close to agreeing the final terms of the Brexit divorce bill, which means that trade talks may be able to begin in December.
The final bill is expected to be around £50 billion – over double the initial offer made by Theresa May, but around the level analysts had initially expected when the prospect of a bill was first floated.
Tenreyro Interest Rate Comments Help Pound US Dollar Exchange Rate Recover
GBP/USD was able to quickly rebound from Chancellor Philip Hammond’s lacklustre Budget, which contained little of interest from a market point of view.
However, the Pound began to cede ground again after a disappointing second-estimate of third-quarter GDP, which showed weakening business investment and service sector growth.
Comments on Friday from Bank of England (BoE) policymaker Silvana Tenreyro boosted GBP/USD at the end of the week.
Tenreyro commented that markets were not adequately prepared for the upside risks to monetary policy from Brexit, having focussed only on the negatives so far.
November Markit PMIs are set for release shortly, starting with the manufacturing index this week and concluding on Tuesday with the vital services and composite indices.
Weakness here would sink the Pound as market fears over the health of the UK economy escalate, while rebounding growth could send Sterling higher.
US Dollar to Pound (USD/GBP) Exchange Rate Soft on Unchanging Fed Hike Expectations
The US Dollar has been largely on the decline versus the Pound over the past few days, with markets unwilling to adjust their positions on USD until after December’s rate hike meeting.
Minutes from the 1st November Federal Open Market Committee (FOMC) meeting disappointed after failing to give the strong signals of monetary tightening next month that markets were looking for.
Yesterday’s Confirmation Hearing for Federal Reserve Chair Nominee Jerome Powell boosted USD after everything went smoothly and Powell indicated he was likely to follow in Janet Yellen’s footsteps with regards to monetary policy.
Today the US Dollar has been weakened by a resurgence in political tensions between the United States and North Korea after the hermit state announced that it had successfully fired a new intercontinental ballistic missile that could strike any target in the United States.
Tomorrow’s personal consumption expenditure figures could boost the long-term monetary policy outlook if it shows an uptick in the pace of consumer spending.
Euro (EUR) Exchange Rates Boosted as Policymakers Signal Further QE Extensions Unlikely
The Euro received a boost on Thursday after the minutes of October’s monetary policy meeting showed that policymakers were split over the issue of leaving the quantitative easing programme open-ended.
Some members expressed concern that this could keep the markets in a pessimistic frame of mind, as they would be expecting further extensions to the programme.
Markets took this as a sign that there weren’t likely to be any increases to QE, driving the Euro higher.
EUR/USD strength has since waned thanks to Jerome Powell’s reassuring confirmation hearing.
Eurozone inflation data tomorrow could improve the outlook for European Central Bank (ECB) monetary policy, which would help the Euro to recover the losses made so far this week.