Pound Sterling Roundup: GBP Recovers Lost Ground as Positive PMIs Vanquish Brexit Blues

GBP/EUR – Pound Benefits From Solid UK PMIs

An unexpectedly positive batch of UK PMIs encouraged the Pound to recover some ground this week, with the British economy showing signs of improved health.

As the negative impact of adverse weather conditions in the first quarter continues to abate, investors were relieved to see the service sector rebound strongly.

Even in the face of Brexit-based uncertainty economic sentiment appeared to improve at the end of the second quarter, suggesting that the earlier slowdown was more transitory in nature.

This boosted bets that the Bank of England (BoE) will raise interest rates again in August, something which could drive GBP exchange rates higher if policymakers adopt a hawkish tone in any comments they make.

GBP/USD – Lack of Brexit Progress Dents Market Confidence

Worries over Brexit have continued to weigh on the Pound in recent days, with Theresa May’s cabinet still clearly divided on key issues.

With UK and EU negotiators remaining at odds the prospect of any imminent breakthrough towards a final deal appears limited.

If there are signs of progress at special cabinet talks later this week the mood towards the Pound could improve, as investors remain keen for there to be a greater degree of certainty.

However, if the EU rejects any new UK proposals that come out of the meeting the GBP/USD exchange rate is likely to slump sharply.

USD/GBP – Trade War Worries Shore up US Dollar

Escalating trade tensions have helped drive the US Dollar higher across the board as the protectionist rhetoric of the Trump administration continues to spook investors.

With the US preparing to implement fresh tariffs on Chinese imports on Friday, an increased sense of market risk aversion has driven demand for the safe-haven USD.

Confidence in the US Dollar could strengthen further ahead of the weekend if June’s raft of labour market data paints an encouraging picture.

An uptick in average hourly earnings would give the Federal Reserve greater cause for optimism, raising the likelihood of the central bank pursuing a more aggressive pace of monetary tightening.

EUR/USD – Mixed Eurozone PMIs Limit Euro Demand

Fears over the prospect of an imminent US-EU trade war have left the Euro on a generally weaker footing in recent days, exacerbated by the continuing slowdown in German exports.

A raft of weaker manufacturing PMIs did little to improve the appeal of the single currency, although corresponding service sector data proved a little more encouraging.

As long as the EU remains on a collision course with the Trump administration, EUR exchange rates are likely to stay under pressure.

Nevertheless, any improvement in the German factory orders and industrial production data could help to boost the appeal of the single currency ahead of the weekend.

Hannah Wilson

Contact Hannah Wilson