GBP/EUR – Lower Odds of No-Deal Brexit Boost Pound
A sharp dip in the odds of a no-deal Brexit saw the Pound surge higher across the board on Tuesday, even though Theresa May refused to rule out the possibility.
With MPs now facing a series of parliamentary votes in March on May’s deal, a no-deal Brexit and a possible extension to the deadline the mood of GBP exchange rates turned bullish.
Although a sense of uncertainty regarding the UK’s future trade relationships persists this was not enough to knock the Pound off its uptrend this week.
However, with the Brexit deadline fast approaching the Pound looks set to experience continued volatility, especially if support for a second referendum also gathers pace.
GBP/USD – Easing UK Economic Confidence Limits Pound Upside
As UK economic confidence fell to its lowest level since June 2013 this dampened the mood towards the Pound, highlighting the continued vulnerability of the domestic economy.
This latest sign of deteriorating economic sentiment suggests that the UK could see a fresh loss of momentum in the first quarter, with businesses already taking a cautious outlook.
Friday’s UK manufacturing PMI could weigh heavily on the GBP/USD exchange rate if the index eases as forecast on the month.
Confirmation that the manufacturing sector is still struggling in the face of Brexit-based uncertainty may give investors incentive to sell out of the Pound once again.
USD/GBP – Fed Caution Dents US Dollar
Signs of caution in the Federal Open Market Committee’s (FOMC) latest meeting minutes limited the appeal of the US Dollar.
With Fed policymakers looking set to keep the monetary tightening cycle on pause in the months ahead USD exchange rates were left on a weaker footing.
An unexpected slump in the Chicago Fed national activity index also weighed on the US Dollar, with the world’s largest economy still showing signs of sluggishness in the face of the global slowdown.
If the fourth quarter annualised gross domestic product eases as forecast USD exchange rates could shed further ground, especially if the wider sense of market risk appetite remains elevated.
EUR/USD – Manufacturing Slowdown Weighs on Euro
February’s Eurozone manufacturing PMIs offered the Euro little cause for confidence, with the German manufacturing sector falling further into a state of contraction.
With the economic strength of the currency union continuing to dwindle the appeal of the Euro naturally diminished, in spite of a solid performance from the corresponding services PMIs.
As the European Central Bank (ECB) appears on track to take a dovish outlook on monetary policy in the near future EUR exchange rates came under pressure.
Even so, an uptick in February’s German and Eurozone consumer price indexes may shore up the single currency.
While inflation is expected to remain below the ECB’s 2% target any improvement could still give EUR exchange rates a boost this week.