GBP/EUR – Pound Softens as Markets Await Johnson’s Brexit Proposal
The mood towards the Pound soured today as markets brace for Prime Minister Boris Johnson’s headline address at the Conservative party conference.
The British premier is expected to present his ‘final offer’ to the EU for a Brexit deal, but Tory officials have warned that if the deal is rejected the result will be a no-deal with no recourse to another delay.
Meanwhile, markets were unimpressed by Johnson’s Irish border proposal and news that he and the Democratic Unionist Party (DUP) have agreed on a ‘secret deal’.
Analysts doubt the proposals will find much favour with EU officials and remain dubious that an agreement is near completion, fuelling bets for a no deal outcome before the end of the month.
Unless there are firm signs of progress towards a mutually agreeable deal in the near future support for the Pound looks set to weaken further.
GBP/USD – Disappointing UK PMIs Set to Drag Pound Lower
September’s UK manufacturing and construction PMIs remained firmly within contraction territory, leaving GBP exchange rates with little in the way of support.
Brexit uncertainties are weighing heavily on economic activity and a similarly disappointing result from the corresponding services PMI will compound negativity and could see the Pound fall further out of favour.
As the service sector accounts for more than three quarters of UK GDP the downbeat PMIs could also fuel fears for a UK recession, extending GBP/USD exchange rate losses.
USD/GBP – Mixed Signals from US Economy Limit US Dollar Potential
A surprise decline in September’s US ISM manufacturing index has undermined confidence in the outlook of the US economy, limiting the potential for USD exchange rate gains.
However, while the index highlighted a sharp deterioration in manufacturing sector conditions the Markit PMI painted a less bearish picture of the month’s performance.
Any negative impact on the US Dollar was ultimately limited, especially in the face of a wider shift in market risk appetite. But with the Federal Reserve under pressure to cut interest rates, Friday’s non-farm payrolls report could see the US Dollar shed ground against its rivals if the labour market shows no sign of tightening.
EUR/USD – Fresh Signs of Eurozone Manufacturing Slowdown Weigh on Euro
Worries over the resilience of the Eurozone economy continue to haunt markets as September’s finalised raft of manufacturing PMIs for the bloc confirmed another loss of momentum.
The German figures offered particular cause for concern, with investors still anxious that the Eurozone’s powerhouse economy might slip into a technical recession.
Speculation that more European Central Bank (ECB) monetary loosening may be on the horizon was stoked when the German consumer price index fell short of forecasts.
Meanwhile, confidence in the overall economic health of the Eurozone could diminish further if August’s retail sales figures fail to show a solid improvement.
If the ECB looks set to continue its dovish shift in the wake of key hawk Sabine Lautenschläger’s early resignation, the single currency is likely to fall further out of favour.