Exchange Rates Weekly News Review: Brexit Resignations Cause Pound Euro (GBP/EUR) Slump

GBP/EUR Exchange Rate – UK Cabinet Turmoil Weighs on Sterling

The shock resignations of Brexit Secretary David Davis and Foreign Secretary Boris Johnson provoked a sharp slump for the Pound at the start of the week.

GBP exchange rates were unsettled by the swift departure of two major Brexiteers from Theresa May’s cabinet, with fears of a potential leadership challenge mounting.

As the political situation showed signs of stabilising, though, the Pound began to recover its losses as the week progressed.

Even so, Sterling still looks vulnerable to any fresh jitters over Theresa May’s future or the likely outcome of Brexit negotiations.

If the odds of a softer Brexit appear to diminish the GBP/EUR exchange rate could come under significant pressure once again.

GBP/USD Exchange Rate – Solid UK Growth Boosts BoE Interest Rate Hike Bets

The first monthly UK gross domestic product (GDP) reading proved positive, pointing towards solid growth in the second quarter, boosting the appeal of the Pound.

While doubts remain over the continuing impact of Brexit uncertainty, investors are hopeful that growth will continue to accelerate in the months ahead.

This gave further fuel to bets that the Bank of England (BoE) will raise interest rates at its August policy meeting, a prospect which has kept a floor under GBP exchange rates.

Providing the latest BoE credit conditions and bank liabilities surveys paint a relatively optimistic picture the Pound could find a fresh rallying point.

USD/GBP Exchange Rate – Disappointing Wage Data Limits US Dollar Demand

Friday’s US labour market data proved rather disappointing, with wage growth showing signs of weakness in spite of another strong headline gain in jobs.

Although markets remain confident that the Federal Reserve will continue to tighten monetary policy there are concerns that the tighter job market is failing to stimulate higher wages.

An escalation in the US-China trade war soon helped to shore up USD exchange rates, however, as investors piled back into the safe-haven US Dollar.

With forecasts pointing towards an uptick in June’s US consumer price index (CPI) the US Dollar could pick up further on Thursday, even though this is not the Fed’s preferred measure of inflationary pressure.

EUR/USD Exchange Rate – German Economic Confidence Falls to Six-Year Low

Investors were not impressed to find that the German ZEW economic sentiment survey had plunged to a six-year low of -24.7 in July.

This decline was largely a reflection of concerns stemming from the threat of further US tariffs on EU products, given that exports have already shown signs of struggling this year.

However, as European Central Bank (ECB) policymakers have maintained a generally positive tone on the domestic outlook the downside potential of EUR exchange rates remained limited.

Signs of resilience in the latest Eurozone industrial production data could offer greater support to the Euro, providing the economy shows evidence of recovering its lost momentum.

Hannah Wilson

Contact Hannah Wilson