GBP/EUR – Pound Stages Modest Recovery in Spite of Weakening Consumer Confidence
The latest decline in the GfK consumer confidence index failed to drive down the Pound, even though sentiment has continued to fall deeper into negative territory as the Brexit deadline approaches.
After coming under pressure over the last week, as tensions over the prospect of a no-deal Brexit ramped up, GBP exchange rates enjoyed a respite on Wednesday morning.
Even so, the Pound could struggle to hold onto its regained ground for long as markets brace for the November Bank of England (BoE) policy announcement.
If BoE policymakers take a more cautious view of the economic outlook the appeal of the Pound is likely to diminish once again, as the odds of a 2019 interest rate hike fade.
GBP/USD – Slump in CBI Sales Index Adds to Bearish Pound Outlook
October’s CBI reported retail sales index did little to bolster the appeal of the Pound, meanwhile, in a fresh sign of weakness for the UK economy.
As the index slumped from 23 to just 5 this raised concerns over the outlook of the UK retail sector, even though at least some of the slowdown is attributable to a change in the seasons.
GBP exchange rates could see further downside pressure if October’s raft of UK PMIs fail to impress.
If signs continue to point towards slowing economic momentum demand for the Pound is likely to diminish further, particularly in the face of sustained Brexit uncertainty.
USD/GBP – Robust US Data Continues to Support Case for Fed Interest Rate Hike
As the annualised US gross domestic product proved stronger than forecast, in spite of slowing on the quarter, this encouraged the US Dollar to hold onto its bullish trend.
The resilient nature of recent US data has kept the odds of a December Federal Reserve interest rate hike at the level of a near-certainty, in spite of political pressures.
With market risk appetite already limited by various geopolitical tensions and trade worries USD exchange rates have benefitted, pushing higher across the board.
However, the mood towards the US Dollar could sour on Friday if October’s non-farm payrolls report fails to match market expectations.
Any signs of a loosening in the labour market or weaker wage growth may dent USD exchange rates.
EUR/USD – Disappointing Eurozone Growth Weighs on Euro
Pressure continued to mount on the European Central Bank (ECB) this week as weaker third quarter Eurozone gross domestic product data contrasted a fresh uptick in inflationary pressure.
Investors were disappointed to find that the currency union has lost further momentum in the third quarter, especially as the Italian economy failed to show any growth.
This weaker growth data suggests that the Eurozone economy may still need the support of ECB stimulus in the coming year, undermining the case for policymakers to wind down the quantitative easing programme.
Confirmation that the Eurozone manufacturing PMIs weakened in October could encourage further selling of the Euro ahead of the weekend, particularly as the Italian manufacturing sector is forecast to fall into a state of contraction.