GBP/EUR – Worries over Brexit Dominate Pound Outlook
Brexit developments continued to dominate the mood towards the Pound over the last week, with markets spooked by the suggestion that plans outlined in the recent government white paper could derail a possible UK-US trade deal.
Mounting tensions in Parliament further undermined the appeal of Sterling as hard-line Brexiteers pushed back against the prospect of a softer form of Brexit.
While worries over the threat of a leadership challenge against Theresa May appear to have diminished, a significant degree of uncertainty continues to hang over the ultimate outcome of the Brexit process.
Even so, if June’s retail sales data proves positive this could help to bolster demand for the Pound ahead of the weekend, although politics looks set to remain the key driver for GBP exchange rates.
GBP/USD – Sterling Slumps on UK Inflation Disappointment
The Pound was left on a generally weaker footing as the UK consumer price index failed to accelerate in June, instead holding steady at 2.4% on the year.
Investors were disappointed to find that inflation had not picked up further, diminishing hopes for a greater shift towards policy action from the Bank of England (BoE).
Ahead of the BoE’s August policy meeting GBP exchange rates are likely to see further volatility as markets speculate over the likely outcome of the vote.
As long as the odds of an imminent interest rate hike remain high, however, the Pound may hold onto some measure of support.
USD/GBP – Upbeat Fed Comments Point towards Further Interest Rate Hikes
Comments from Federal Reserve Chair Jerome Powell helped to shore up USD exchange rates this week.
With Powell indicating that the Fed is likely to keep raising interest rates, albeit at a gradual pace, this has encouraged investors to pile into the US Dollar.
While the Fed Chair sounded a slightly cautious note on trade his assessment of the US economy’s current health was rather more upbeat.
If other Fed policymakers adopt a similar tone in upcoming speeches this could see the US Dollar pushing higher across the board.
An uptick in June’s leading index may also improve the appeal of USD in the near term, improving confidence in the US domestic outlook.
EUR/USD – Mixed Eurozone Inflation Weighs on Euro
Although the headline Eurozone consumer price index showed a modest improvement on the year this was not enough to boost the Euro.
Focus instead fell on signs of weakness in both the monthly and core CPI, which suggests that inflation in the currency union is still struggling to pick up.
As weaker inflation is likely to encourage the European Central Bank (ECB) to take a more gradual approach to tightening monetary policy this leaves the single currency vulnerable to downside pressure.
Rising global trade tensions could also keep EUR exchange rates under pressure in the days ahead, especially if signs continue to point towards a slower pace of Eurozone growth.