Prime Minister’s Loss of Parliamentary Control Fuels Pound Rally

GBP/EUR – Pound Benefits as Parliament Regains Control

The Pound experienced a volatile few days as parliament reconvened from its summer recess and triggered a week of Brexit chaos.

On Tuesday, MPs successfully regained control of parliament and tabled a bill intended to block a no-deal Brexit.

GBP exchange rates reacted positively, recovering from previous lows. However, the political situation remains indefinite and UK politics are likely to influence the GBP/EUR pairing throughout the rest of the week.

The Pound could strengthen further if parliament successfully passes legislation to rule out a no-deal Brexit or manages to secure an extension to the current Brexit deadline. On the other hand, Sterling could backslide if the government actuates a snap general election.

GBP/USD – Underwhelming UK PMIs Leave Pound on Back Foot

August’s UK PMIs offered little support for the Pound, with British manufacturing, service and construction sectors lingering in contraction territory, further stoking fears for a UK recession.

Unless Friday’s Halifax house price index shows a solid uptick in UK household confidence, the mood towards the Pound could sour ahead of the weekend.

However, GBP/USD losses were capped by a less-than-impressive US manufacturing report.

USD/GBP – Shock Manufacturing Contraction Squeezes US Dollar

August’s ISM manufacturing index showed a surprise contraction, diminishing confidence in the US economic outlook and pushing the US Dollar onto a weaker footing.

The slowdown suggests recent US-China trade tensions had a greater impact on the health of the American economy than previously thought, increasing concerns for a US recession.

With the Federal Reserve under renewed pressure to cut interest rates USD traders are likely to remain cautious in the days ahead unless local data impresses.

EUR/USD – Euro Under Pressure Ahead of German Industrial Data

Euro exchange rates continue to linger on a weaker footing as the Eurozone manufacturing sector remains in a state of slowdown and global trade tensions mount, feeding into the case for European Central Bank (ECB) monetary easing.

However, the EUR/USD exchange rate could move away from its recent 2-year lows if German factory orders and industrial production rebounded in July.

Louisa Heath

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