GBP/EUR Exchange Rate – Brexit Agreement Fails to Shore up Pound
Although the UK and EU reached a deal on Brexit on Tuesday this failed to keep the Pound on a bullish trend for long.
Investors soon started pulling out of the Pound as anticipation mounted for a key cabinet meeting, which could see the deal rejected by ministers.
With a long way still to go before any Brexit agreement is finalised this limited the strength of GBP exchange rates, especially as signs still point towards division within Parliament.
If the deal fails to find support among MPs the Pound selloff is likely to accelerate, with investors sceptical of the possibility of the two sides finding an alternative before the March 2019 deadline.
GBP/USD Exchange Rate – Pound Weakens despite Upbeat UK GDP
Despite printing above expectations, after the UK gross domestic product was found to have stagnated in both August and September confidence in the economic outlook diminished.
However, the Pound found support on the back of the latest UK weekly earnings data, with earnings excluding bonuses accelerating 3.2% in the three months to September.
Coupled with October’s static consumer price index, which unexpectedly held steady at 2.4%, this could ease some of the pressure on UK households in the coming months.
A stronger showing from Thursday’s retail sales figures may help to bolster the appeal of the Pound further, with higher spending likely to drive stronger economic growth.
USD/GBP – Confidence in Prospect of December Interest Rate Hike Limits US Dollar Weakness
As the Federal Reserve signalled its intention to raise interest rates at its December policy meeting this helped to keep the US Dollar on a stronger footing.
Market risk aversion continued to benefit USD exchange rates even as investors speculated over the likelihood of the US and China agreeing to deescalate trade tensions.
While October’s monthly budget statement proved underwhelming, showing a deficit of -100 billion, this was not enough to dent the US Dollar on Tuesday night.
Improved retail sales data for October may give USD exchange rates a fresh boost across the board, with forecasts pointing towards a solid uptick on the month.
More hawkish signals from Fed policymakers could also see the US Dollar trending higher in the days ahead.
EUR/USD – German Exports and GDP Contractions Weigh on Euro Outlook
A surprise contraction in German export volumes on the month in September put the Euro under renewed pressure last week.
With the Eurozone’s powerhouse economy continuing to show signs of decline the appeal of the single currency naturally diminished.
The European Commission’s decision to lower its growth forecasts added to the sense of Euro bearishness, especially as its 2019 forecast for Italy spelled further controversy over the government’s budget proposal.
EUR exchange rates continued to trend lower after the German economy unexpectedly contracted -0.2% in the third quarter, giving the European Central Bank (ECB) less cause for confidence.
Confirmation that the Eurozone inflation rate picked up in October is unlikely to be enough to shore up the Euro ahead of the weekend.