Currencies Roundup: Brexit Uncertainty Drives Pound Volatility, Dovish Fed Drags on US Dollar

GBP/EUR Exchange Rate: Crushing Defeat for Government Sends May back to Brexit Drawing Board

While the Pound continues to push higher in 2019, it has been far from plain sailing for the UK currency, with Sterling facing volatility as it becomes increasingly sensitive to political developments.

For instance, GBP exchange rates weakened throughout almost the entire session last week, until the Pound shot up on Friday amid reports that Brexit could be delayed in order to give the government more time to pass the necessary legislation to allow the UK to exit the EU.

This week has seen Sterling continue to trade in a wide range, with the thorough rejection of Theresa May’s Brexit deal by MPs prompting another spike in GBP, despite the immediate threat of a no-confidence vote in the Government.

Looking ahead, the Pound is likely to remain driven almost entirely by Brexit developments, with the volatility in Sterling likely to persist as uncertainty grows.

GBP/USD Exchange Rate: Sterling Firms as US Government Shutdown Weighs

The GBP/USD exchange rate continued to edger higher throughout last week’s session, with a lack of notable US data limiting the US Dollar’s potential to rise.

The only US release of note were the latest CPI figures on Friday, which saw the US Dollar struggle as domestic inflation slipped in December.

US data is likely to remain thin on the ground over the coming week, likely resulting in movement in the GBP/USD exchange rate being driven by UK data, with the publication of the UK’s latest labour report potentially boosting the Pound if wage growth is shown to have remained robust through November.

USD/GBP Exchange Rate: Fed Rate Doubts Limit Appeal of US Dollar

The USD/GBP exchange rate stumbled over the last week as growing speculation that the Federal Reserve may adopt a more dovish stance this year begins to drag on the US Dollar.

This comes in the wake of minutes from the Fed’s December policy meeting, in which it was shown that not all policymakers were in favour of a rate hike last month.

On top of this, a number of board members expressed their doubts over the Fed’s plans for further hikes this year, with many urging the bank to be patient until the US economic outlook becomes clearer.

However it wasn’t all doom and gloom for the US Dollar over the last week, with the safe-haven currency finding support as some lacklustre Chinese economic data led to a drop in market risk appetite.

Looking ahead, the ongoing US government shutdown is likely to become increasingly detrimental to the US Dollar in the coming weeks as not only does it greatly limit the economic data coming out of the US, but may see investors begin to shun USD amid uncertainty of its long-term impact on the US economy.

EUR/USD Exchange Rate: Euro Mixed amid Eurozone Growth Fears

Trade in the Euro has been mixed over the past week, with concerns of a slowdown in the Eurozone undermining the single currency’s gains made due to a weaker US Dollar.

Following some lacklustre German industrial data last week, markets began to express fears that Europe’s largest economy may have entered a technical recession at the end of 2018.

While the release of Germany’s 2018 GDP report suggested this fate was narrowly avoided, markets this week began to raise concerns about a slowdown across the entire Eurozone after a sharper-than-expected drop in industrial production was revealed in the bloc in November.

These concerns may continue to hound the Euro over the coming week with the release of the Eurozone’s first PMI reading of 2019, and with a further slowing of growth in the bloc’s private sector likely to drag on EUR sentiment.

Luke Trevail

Luke studied Journalism at university but quickly moved into the financial sector, initially working in retail banking before joining TorFX in 2007. As a Senior Account Manager Luke assists in overseeing the management of the company’s exposure to currency volatility. He uses his years of foreign exchange experience to produce regular news updates exploring the latest currency movements.

Contact Luke Trevail