GBP/EUR – Accelerating Wage Growth Failed to Shore up Pound Exchange Rates
A stronger-than-expected uptick in UK average weekly earnings in the three months to July saw wage growth continue to outpace inflation.
This failed to give the Pound much of a boost, however, as GBP exchange rates struggled to find fresh headroom in the wake of optimistic Brexit comments from the EU’s chief negotiator Michel Barnier.
As hopes built for the UK and EU to reach an agreement by November the Pound saw solid gains across the board, in spite of persistent market jitters.
However, as some Conservative MPs continue to push back against Theresa May’s Chequers plan and the prospect of a softer Brexit the potential for a smooth deal remains limited.
GBP/USD – Pound Muted on Expectation of Steady Monetary Policy
Confirmation that Bank of England (BoE) Governor Mark Carney will stay on until January 2020 was not enough to give GBP exchange rates a rallying point.
Traders had already largely priced in the prospect of an extension to Carney’s term, with some disappointed that he would not remain in the post for longer.
As investors expect policymakers to leave interest rates on hold at September’s BoE meeting the appeal of the Pound has weakened ahead of Thursday’s announcement.
However, if the BoE maintains a more optimistic view on the domestic outlook GBP exchange rates have the potential to rally sharply.
USD/GBP – Mixed Employment Data Limits USD Upside
Friday’s US labour market data proved a little mixed in nature, preventing the US Dollar from extending its bullish run further.
While the unemployment rate failed to ease to 3.8% as forecast this was balanced out by an unexpected surge in average hourly earnings for August.
All in all, the US labour market continues to show signs of tightening, helping to limit the downside potential of USD exchange rates.
Any weakening in August’s advance retail sales data could put pressure on the US Dollar, however, as confidence in the domestic outlook remains contested.
The latest US consumer price index data may also weigh heavily on USD exchange rates if the headline inflation rate eases on the year.
EUR/USD – Euro Vulnerable to Lower Confidence and ECB Commentary
Confidence in the economic outlook of the Eurozone deteriorated sharply in response to weaker-than-forecast German trade and Eurozone growth data.
A surprise downward revision to the finalised second quarter Eurozone gross domestic product left the Euro lacking in support, with global trade tensions expected to weaken growth further in the months ahead.
Even though the German ZEW economic sentiment survey showed a solid improvement in September this was not enough to give the single currency any major boost.
Comments from European Central Bank (ECB) President Mario Draghi in the wake of the September policy meeting are likely to provoke fresh volatility for EUR exchange rates.
Unless Draghi demonstrates signs of greater optimism in the domestic outlook the Euro looks vulnerable to fresh losses.