GBP/EUR – Lack of Progress on Irish Border Issue Raises Risk of No-Deal Brexit
Brexit jitters remain a major drag on the Pound as the two sides look no closer to securing a deal, mostly thanks to disagreement over Northern Ireland.
Theresa May has so far failed to reach a compromise over the Irish border that will satisfy both the DUP and Conservative MPs, something which limits her ability to push through any potential Brexit deal.
As recent domestic data has proved generally unimpressive there has been little in the way of encouragement for the Pound, especially as wider geopolitical tensions have prompted greater market risk aversion.
Without a resolution to the impasse over the Irish border GBP exchange rates are likely to face persistent downside pressure, as the threat of a no-deal Brexit encourages businesses to maintain a cautious outlook.
GBP/USD – Falling Mortgage Approvals and Business Optimism Dent Pound
Confidence in the outlook of the UK economy continues to diminish as mortgage approvals fell to a six-month low in September, meanwhile.
Following on the heels of a sharp slump in the latest CBI business optimism index, which plunged from -3 to -16, this highlighted the increasing sense of caution pervading the economy.
As Brexit remains a significant source of uncertainty this limited the appeal of Pound Sterling, with sentiment looking set to deteriorate further as the March 2019 deadline approaches.
Mounting anticipation ahead of next week’s Bank of England (BoE) policy meeting may offer some support to GBP exchange rates, even though no change in policy is expected at this stage.
USD/GBP – US Dollar Remains on Strong Footing in Spite of Housing Market Weakness
Although Donald Trump continues to level attacks at the Federal Reserve’s approach to interest rates this has failed to dent the US Dollar.
Underwhelming data from the US construction sector and housing market was not enough to weigh down USD exchange rates, meanwhile.
As investors remain confident that the Fed will raise interest rates again before the end of the year there has been little incentive to sell out of the US Dollar.
However, as forecasts point towards weaker durable goods orders and advance goods trade balance readings the mood towards the US Dollar could sour this week.
Evidence of easing confidence and weaker growth within the US economy may knock USD exchange rates off their recent uptrend.
EUR/USD – Underwhelming PMIs Point towards a Further Slowdown in Eurozone Growth
October’s Eurozone manufacturing and services PMIs proved disappointing, showing a more pronounced easing of growth momentum on the month.
This highlighted the less robust nature of the Eurozone economy, which remains vulnerable to slowing global growth, international trade tensions and internal politics.
With the Italian government refusing to adjust its 2.4% target budget deficit after the European Commission rejected its 2019 budget proposal political tensions look set to escalate further.
Until the issue of the Italian budget is settled EUR exchange rates may struggle to find any sustained support.
Thursday’s European Central Bank (ECB) policy announcement could give the Euro a boost, however, if policymakers adopt a more optimistic outlook.