GBP/EUR – Prospect of Brexit Delay Dents Pound Demand
The Pound surged higher on Friday as Boris Johnson prepared to set a new Brexit agreement before parliament, even though forecasts suggested the Prime Minister would lack the necessary numbers to support his deal.
Optimism that the deal might pass the scrutiny of MPs soon faltered when parliament failed to give the deal its seal of approval on Saturday, forcing Johnson to request an Article 50 extension from EU leaders.
While a Withdrawal Agreement bill managed to pass its second reading yesterday, Johnson’s accelerated timetable was rejected by MPs and the odds for a delay increased further.
The Prime Minister reacted by suggesting he would abandon the deal altogether and call for a snap general election, a move which could push GBP exchange rates further away from their recent multi-month highs in the days ahead.
GBP investors will sit on their hands as they await an official decision from the EU on a deadline extension, but the Pound looks set to slide further if the Brexit saga drags on into 2020.
GBP/USD – Weakening Business Sentiment Raises Concerns for UK Economy
Confidence in the underlying health of the UK economy dwindled today as October’s CBI business optimism index defied forecasts and slumped deeper into negative territory.
With sentiment clocking in at a dismal -44, fresh evidence emerged of the negative impact Brexit is having on the British economy. Coupled with increased government borrowing this paints a gloomy picture for the domestic outlook.
However, with Brexit dominating headlines, the poor data had a negligible effect on Pound movement.
USD/GBP – Trade Hopes Limit US Dollar Support
Positive comments from US and Chinese officials encouraged hopes that a trade deal is on the horizon, increasing market risk appetite and placing pressure on the safe-haven US Dollar.
An unexpectedly negative leading index reading helped to push USD exchange rates even lower as confidence in the world’s largest economy diminished.
With forecasts pointing towards a sharp monthly decline in durable goods orders, concerns for the state of the US economy and the risk of a dovish Federal Reserve look set to increase, keeping USD exchange rates on a softer footing.
EUR/USD – Bundesbank’s German Growth Warning Drags on Euro
The Bundesbank’s latest monthly report gave investors little cause for confidence, with its forecasts pointing toward negative third quarter German growth.
The Eurozone’s powerhouse economy appears on course to enter a technical recession and the Euro could shed further ground if Thursday’s raft of Eurozone manufacturing and services PMIs meet predictions for another weak month of activity.
Underwhelming PMIs would also buttress the case for more monetary loosening from the European Central Bank (ECB), although analysts expect no change in policy at Thursday’s meeting.