GBP/EUR – Rejection of May’s Brexit Deal Provokes Fresh Uncertainty
Brexit developments prompted a period of significant Pound volatility over the last few days, with investors on edge as the deadline approaches.
After MPs voted down Theresa May’s updated Brexit deal, however, GBP exchange rates were able to recover some of their recent losses.
As investors remain confident that Parliament will vote to rule out a no-deal Brexit a sense of optimism helped to limit the downside potential of the Pound.
However, as long as a sense of uncertainty over Brexit continues to weigh on the economic outlook this is likely to diminish any potential GBP exchange rate gains.
GBP/USD – Stronger UK Growth Struggles to Support Pound Gains
Although January’s UK gross domestic product data bettered expectations on Tuesday this was not enough to keep the Pound on a positive footing for long.
While consumers have continued to shrug off Brexit uncertainty, helping to drive economic activity, confidence in the economic outlook remains muted.
The mood towards the Pound could sour further in the near term if Thursday’s RICS house price balance deteriorates as forecast.
Fresh signs of weakness within the UK housing market would put further pressure on GBP exchange rates, adding to the sense of Brexit anxiety that continues to weigh on the minds of investors.
USD/GBP – US Dollar Softens on Underwhelming Payrolls Data
February’s US non-farm payrolls report fell substantially short of forecasts as just 20,000 new jobs were added to the economy on the month.
This was a significant slowdown from January’s strong payrolls figure, even as the unemployment rate tightened from 4% to 3.8%.
A surprise dip in the US consumer price index also put pressure on the US Dollar this week, with confidence in the underlying strength of the US economy fading.
Friday’s University of Michigan consumer sentiment index could offer USD exchange rates a rallying point, however, provided that confidence shows signs of picking up.
As long as market risk appetite remains muted this may also encourage investors to favour the US Dollar over its more risk-sensitive rivals.
EUR/USD – Dovish ECB Meeting Drags Euro Down
The European Central Bank’s (ECB) March policy meeting left the Euro on a weaker footing, with policymakers taking a more dovish turn than anticipated.
As the central bank lowered its growth forecasts and effectively ruled out the prospect of a 2019 interest rate hike EUR exchange rates slumped.
While investors were encouraged by the announcement of fresh long-term loans to banks worries over the health of the Eurozone economy mounted.
Confirmation of an uptick in February’s German and Eurozone consumer price index data could offer the Euro encouragement, however.
Even though the ECB looks set to maintain a cautious policy outlook for some time to come the single currency could still benefit from evidence of rising inflationary pressure.