GBP/EUR – Pound Shakes Off Latest Brexit Forecasts
The Pound was quick to shrug off the latest economic analysis produced by the Treasury, even though all of the modelled Brexit scenarios left the UK economy worse off.
With the UK gross domestic product forecast to fall by 0.6% under the now defunct Chequers deal or as much as 7.7% in the event of a no-deal Brexit the outlook appears rather grim.
Nevertheless, demand for the Pound picked up on Wednesday morning as Theresa May continued her drive to shore up support for the proposed Brexit deal.
Unless markets see the odds improve of May’s Brexit proposal passing successfully through Parliament the Pound remains vulnerable to another selloff.
GBP/USD – Stronger Retail Sales Fail to Shore up Pound
Although November’s CBI reported retail sales index showed an unexpectedly strong improvement on the month this failed to give GBP exchange rates any real boost.
Investors were more concerned by the underlying details of the report, which highlighted business expectations for greater weakness in the next three months.
With the UK economy already coming under pressure as a result of Brexit-based uncertainty this limited the upside potential of the Pound.
Even so, GBP exchange rates could find support on Thursday if October’s net consumer credit and mortgage approvals figures both point towards higher levels of household borrowing.
USD/GBP – Confidence in US Economic Outlook Diminishes
The US economy continued to send mixed signals this week, with a stronger Chicago Fed national activity index contrasting a disappointing Dallas Fed manufacturing index.
While the threat of a fresh escalation in the US-China trade spat encouraged safe-haven demand, supporting USD exchange rates, this still raised concerns over the outlook of the US economy.
As commentary from Federal Reserve policymakers suggested that the central bank is likely to take a less aggressive approach to monetary tightening in 2019 this put additional pressure on the US Dollar.
However, an uptick in October’s personal consumption expenditure core reading could give USD exchange rates a boost.
Even if inflationary pressure shows signs of building, though, a less hawkish set of Federal Open Market Committee (FOMC) meeting minutes could see the US Dollar trending lower once again.
EUR/USD – Euro Falters as Eurozone Struggles to Regain Lost Momentum
November’s Eurozone manufacturing and services PMIs did not offer the Euro any cause for confidence, with signs pointing towards a loss of growth across the currency union.
Although the headline PMIs remained in a state of expansion this weaker showing indicates that the Eurozone economy is struggling to recover its lost momentum.
Coupled with underwhelming German IFO business sentiment surveys this left EUR exchange rates on a generally weaker footing, even as market risk aversion picked up.
Further losses could be in store for the single currency ahead of the weekend if November’s German and Eurozone consumer price index readings prove disappointing.
Any easing in inflationary pressure is likely to give the European Central Bank (ECB) incentive to leave interest rates on hold for longer.