GBP/EUR – Easing UK Inflation Leaves Pound Under Pressure
October’s UK consumer price index fell short of forecast, with the headline inflation rate easing from 1.7% to 1.5%.
This decline is likely to encourage a greater sense of dovishness among Bank of England (BoE) policymakers, raising the risk of interest rates seeing a cut sooner rather than later.
Even so, the Pound was able to recover some ground ahead of the weekend thanks to reports that all standing Conservative candidates have pledged to support Boris Johnson’s Brexit deal.
Election jitters could still weigh on GBP exchange rates in the days ahead, though, as markets remain wary of the possibility of another hung parliament.
GBP/USD – Soft Retail Sales Fuel Anxiety over UK Economic Outlook
An unexpectedly monthly decline in retail sales put additional pressure on the Pound, suggesting that consumers are taking a more cautious outlook in the fourth quarter.
With Brexit-based uncertainty still hanging over the economic outlook this decline in spending could pave the way for a weaker growth rate.
Confidence in the outlook of the UK economy could take a fresh blow ahead of the weekend, with November’s manufacturing PMI expected to remain in contraction territory.
On the other hand, as forecasts point towards a modest uptick from the services PMI investors could find reason to favour the Pound.
As long as the service sector demonstrates resilience the downside potential of GBP exchange rates is likely to ease.
USD/GBP – Disappointing Production Data Drags Down US Dollar
The mood towards the US Dollar soured on Friday as October’s industrial and manufacturing production figures showed a deeper contraction than anticipated.
A sharp decline in the capacity utilisation index added to the bearish mood of USD exchange rates, with confidence in the underlying health of the world’s largest economy generally fading.
Lingering market doubts over the likelihood of an imminent breakthrough in US-China trade relations were not enough to give the US Dollar any particular support in the meantime.
Further weakness could be in store for USD exchange rates on the back of the release of the Federal Open Market Committee’s (FOMC) November meeting minutes.
Evidence of greater caution among Fed policymakers may drive the US Dollar lower across the board as the odds of further monetary loosening to come pick up.
EUR/USD – Euro Finds Support as Germany Avoids Technical Recession
Defying expectations, the German economy narrowly avoided falling into a state of technical recession in the third quarter.
As the quarterly gross domestic product clocked in at 0.1% this helped to limit the downside potential of the Euro, even though worries over the resilience of the Eurozone’s powerhouse economy remain.
A surprise decline in the latest Eurozone construction output data also left the single currency under pressure this week.
With forecasts pointing towards another lacklustre monthly performance from the German manufacturing PMI EUR exchange rates look vulnerable to additional selling pressure.
If the European Central Bank (ECB) appears to be leaning towards greater dovishness in its November meeting minutes the appeal of the Euro could weaken further.