GBP/USD Exchange Rate – Speculation over BoE Rate Decision Continues
Comments from Bank of England (BoE) deputy governor Ben Broadbent did not offer GBP exchange rates much encouragement at the start of the week.
Broadbent’s indication that he has yet to decide whether to vote in favour of an interest rate hike further undermined the odds of an imminent policy move.
With UK data continuing to offer rather mixed signals regarding the domestic outlook the upside potential of GBP exchange rates was naturally limited.
As anticipation mounts for next week’s BoE policy meeting and the third quarter inflation report the Pound is likely to see increased volatility.
GBP/EUR Exchange Rate – Brexit Reshuffle Boosts Pound
News that Theresa May had reshuffled the Brexit negotiating team, giving herself a greater role, has helped to boost demand for the Pound.
Markets are hopeful that this shake-up could help to move talks forward as the March 2019 deadline approaches.
However, with significant issues such as the Irish border and various trade matters remaining, the impact of this optimism proved rather short-lived.
Until investors see signs of concrete progress towards a satisfactory deal, GBP exchange rates are likely to remain largely biased to the downside.
USD/GBP Exchange Rate – Mounting Trade Tensions Continue to Overshadow US Outlook
Worries over potential political pressure on the Federal Reserve to refrain from raising interest rates dented the US Dollar.
While the Trump administration continues to favour a weaker USD, however, markets still expect the Fed to continue its monetary tightening cycle regardless.
The threat of a further escalation in trade tensions between the US and China continues to hang over the outlook of the US economy, though.
Even so, if the second quarter US gross domestic product demonstrates an acceleration in growth as forecast this could encourage the US Dollar to return to a bullish trend.
EUR/USD
Exchange Rate – Euro Softens After Lacklustre Eurozone PMIs
July’s Eurozone composite PMI proved disappointing, slipping from 54.9 to 54.3 as service sector growth and export orders eased.
This suggests that the currency union started the third quarter on a relatively soft footing, undermining hopes that the economy will regain its lost momentum in the months ahead.
As a result, the European Central Bank (ECB) may be encouraged to take a more cautious approach to monetary policy, holding off on an interest rate hike for longer.
If President Mario Draghi sounds a more optimistic note on the economic outlook of the Eurozone at Thursday’s press conference, this may encourage the single currency to push higher across the board.