Brexit Uncertainty Keeps a Lid on GBP, US-China Trade Tensions Weigh on USD

GBP/EUR Exchange Rate: Sterling Slides as No-Deal Brexit Risks Rise

After falling heavily through the first half of last week, GBP/EUR managed to reclaim ground through the second half of the session, aided by some modest EUR selling.

However, the Pound’s recovery was limited by the Bank of England (BoE) slashing its 2019 growth forecasts following the August policy meeting.

The GBP/EUR exchange rate then struck a fresh two-year low at the start of this week with persistent no-deal Brexit fears leaving the Pound vulnerable to losses against a resurgent Euro.

We can expect GBP/EUR to touch new lows in the latter half of this week’s session as economists forecast a stagnation, or even contraction of UK GDP in the second quarter.

GBP/USD Exchange Rate: Pound Steadies as UK Services PMI Strikes Nine-Month High

Following on from sharp losses at the start of the session, the GBP/USD exchange rate refreshed a 28-month low in the second half of last week with persistent no-deal Brexit fears limiting the appeal of Sterling.

After a modest rebound on Friday, the downtrend in GBP/USD initially looked set to continue at the start of the week. But the pairing quickly reversed losses following the publication of the UK’s latest PMI figure; growth in the UK’s dominant services sector unexpectedly accelerated to a nine-month high in July.

Since then the GBP/USD exchange rate has remained largely range bound amidst a UK economic data lull and the absence of major political developments.

USD/GBP Exchange Rate: Escalating US-China Trade Tensions Drag on the US Dollar

A hawkish tone from the Federal Reserve helped to push the USD/GBP exchange rate to a new 28-month high last week with the bank signalling its July rate cut was likely a ‘one-off’.

The US Dollar struggled to sustain these gains through the second half of the week after Donald Trump surprised markets by threating to impose new tariffs on China, once again igniting trade tensions between the two powers.

This week saw similar activity, with the US Dollar struggling to find momentum amid fears that another escalation in tensions could impact the US economy. Analysts are even forecasting further rate cuts by the Fed.

Next week’s publication of the latest US CPI figures could lend some strength to the US Dollar if inflation accelerated as forecast in July.

EUR/USD Exchange Rate: Gloomy German Data Takes the Shine off the Euro

While the Euro slumped after data showed that Eurozone GDP halved in the second quarter, the common currency quickly recovered thanks to US Dollar weakness.

However the EUR/USD exchange rate was then forced to pull back from a two-week high, with the publication of Germany’s latest industrial data showing domestic factory output fell sharply in June.

This will feed into the publication of Germany’s latest GDP figures next week, potentially driving some heavy selling of the Euro if the Eurozone’s largest economy contracted as forecast in the second quarter.

Matthew Andrews

Contact Matthew Andrews