GBP/EUR Exchange Rate – Brexit Worries Mount as UK and EU Remain at Odds
Theresa May’s latest speech on the subject of Brexit did little to boost the appeal of the Pound, failing to offer much in the way of clarity to markets.
Subsequent comments from EU officials soured the mood towards Sterling further, indicating that the two sides remain largely at odds over many of the key issues.
With little over a year now left until the exit deadline of March 2019 jitters over Brexit look set to remain a key headwind for GBP exchange rates for some time to come.
Unless the UK and EU show greater willingness to compromise in order to achieve a satisfactory arrangement, and if uncertainty persists, the Pound could struggle to find any sustained support against its rivals.
GBP/USD Exchange Rate – Weaker GDP Estimate Forecast to Soften Pound Further
In an encouraging sign for the UK economy, February’s services PMI bettered forecast to jump from 53 to 54.5 on the month.
This indicates that the UK’s main engine of growth is still functioning well, in spite of continued uncertainties over Brexit.
Forecasts also point towards an improvement in the latest UK visible trade deficit and industrial production figures, which could boost GBP exchange rates ahead of the weekend.
On the other hand, the NIESR gross domestic product estimate for the three months to February is expected to show a slight loss of momentum.
Any signs that the UK economy is slowing would weigh heavily on the Pound, denting the prospect of an imminent Bank of England (BoE) interest rate hike.
USD/GBP Exchange Rate – Trade War Fears Limit US Dollar Upside
The Trump administration’s announcement of its intention to impose significant tariffs on steel and aluminium imports failed to boost the US Dollar for long.
Investors are concerned that this shift towards greater protectionism is likely to have a generally negative impact on the growth of the US economy, especially if retaliatory measures are put in place.
The subsequent resignation of key White House economic advisor Gary Cohn put further pressure on USD exchange rates.
Even so, if Friday’s non-farm payrolls report points towards a continued tightening of the US labour market this could see the US Dollar trending higher once again.
Any softness in domestic wage growth, though, may dent the prospect of the Federal Reserve actioning four interest rate hikes over the course of 2018.
EUR/USD Exchange Rate – Euro Muted Ahead of ECB Decision
Markets were unsettled by the outcome of the Italian general election, which saw a greater swing towards populist parties than investors had anticipated.
Although the future of the Italian government remains rather uncertain, the initial negative impact of the news was tempered by positive progress with regards to the German coalition government.
As long as policymakers look set to maintain loose monetary policy for longer EUR exchange rates are likely to lack any particular strength.
A widening of the German trade surplus could nevertheless still offer the single currency some cause for confidence ahead of the weekend.