GBP/EUR – Pound Slips as Brexit Uncertainty Continues
The appeal of the Pound took a knock after MPs approved a motion to reject the Irish backstop in favour of negotiating an alternative arrangement with the EU.
As EU leaders have repeatedly ruled out the reopening of negotiations on the matter this move left GBP exchange rates on the back foot as an air of uncertainty dominated market sentiment.
With the odds of a no-deal Brexit revised higher in the wake of the debate the Pound may have trouble recovering any particular sense of bullishness in the days ahead.
Any deterioration in the GfK consumer confidence index could put additional weight on the GBP/EUR exchange rate on Thursday as worries over Brexit mount.
GBP/USD – Falling Consumer Credit Growth Dents Pound
Weaker-than-expected UK net consumer credit and mortgage approvals figures offered the Pound little cause for confidence this morning.
As annual consumer credit growth eased to its weakest level since late 2014 this suggests that consumers are reducing their borrowing, likely in response to Brexit-based uncertainty.
Although this easing limits the amount of household debt this could still impact negatively on economic activity in the months ahead.
Worries over the underlying health of the UK economy may pick up further if Friday’s manufacturing PMI also loses momentum on the month.
USD/GBP – End of Government Shutdown Encourages US Dollar Recovery
The end to the long-running government shutdown helped to buoy the US Dollar against its rivals, even though the ultimate impact of the disruption remains to be seen.
However, USD exchange rates struggled to maintain any gains for long as January’s consumer confidence index saw a sharp decline on the month.
The Federal Open Market Committee’s (FOMC) first meeting of 2019 is unlikely to yield any change in policy, although this could still provoke volatility for the US Dollar.
Unless the Fed signals greater optimism in the economic outlook the US Dollar may struggle to capitalise on any fresh weakness of the Pound or Euro in the days ahead.
EUR/USD – ECB Caution Limits Euro Demand
As the European Central Bank (ECB) adopted a more cautious tone at its January policy meeting the Euro came under fresh pressure.
With a 2019 interest rate hike looking an increasingly distant prospect investors saw limited incentive to favour the single currency, especially in the face of lacklustre Eurozone data.
Although the fourth quarter French gross domestic product delivered a positive surprise, holding steady at 0.3% on the quarter, this failed to encourage any EUR exchange rate rally.
Friday’s Eurozone consumer price index data may put an additional dampener on the Euro if inflation shows further signs of easing at the start of 2019.