GBP/EUR – Plan to Prorogue Parliament Increases No-Deal Risk
Market anxiety over Brexit reignited today and saw the Pound slide sharply against its rivals following news that Prime Minister Boris Johnson intends to prorogue Parliament ahead of the Brexit deadline.
If successful, Johnson’s move to schedule a Queen’s speech in early October will reset the current political session and cancel any legislation due to pass through Parliament, effectively scuppering cross-party attempts to block a no-deal scenario.
Political fallout from the move looks set to dominate the outlook for GBP exchange rates in the days ahead, reducing investor confidence in the Pound and limiting any potential for a recovery.
GBP/USD – Pound Stumbles on Weakening Retail Sales
The latest British Retail Consortium (BRC) shop price index showed a fresh contraction, adding to the negative bias for GBP exchange rates. This evidence of reduced consumer spending suggests a high-street reaction to Brexit uncertainty and leaves investors with little cause for confidence.
If Friday’s GfK consumer confidence index shows any further deterioration this would weigh heavily on the Pound and pour fuel on fears for a potential UK recession.
With no apparent signs of an economic recovery, GBP exchange rates look set to continue their slide.
USD/GBP – Stronger Consumer Confidence Boosts US Dollar
A better-than-expected US consumer confidence index helped to shore up the US Dollar, easing concerns over the health of the world’s largest economy.
An increase in safe-haven demand propped up USD exchange rates despite souring trade relations between the US and China, the two powers unveiling additional tariffs over the weekend amidst a flurry of contradictory rhetoric on both sides.
However, any sense of US Dollar optimism could prove short-lived as the Federal Reserve comes under increasing political pressure to cut interest rates. A weakening of July’s personal consumption expenditure core – traditionally an inflation gauge for the Fed – would give bank policymakers greater cause for dovishness.
EUR/USD – Signs of German Slowdown Weigh on Euro
August’s IFO business sentiment surveys showed a fresh slowdown, indicating a deterioration of confidence within the German economy and doing little to ease fears for a Q3 Eurozone recession.
Weaker German import price index figures added to the single currency’s limited appeal, keeping EUR exchange rates on a softer footing.
A decline in the German consumer price index may encourage further selling of the Euro, especially as the European Central Bank (ECB) looks poised to cut interest rates.