Brexit speculation continues to dominate pound outlook
[vc_row][vc_column][vc_column_text]As the BoE indicated that the UK banking system is capable of withstanding a no-deal Brexit scenario this encouraged greater confidence among investors last week, boosting the pound.
GBP exchange rates also benefitted from a better-than-expected UK gross domestic product reading, which showed growth of 0.3% over the three months to May.
This suggests that the risk of a second quarter slowdown is lower than previously feared, giving investors incentive to buy back into the weakened pound.
An unexpectedly improved RICS house price balance figure also offered support to the pound ahead of the weekend, showing that price growth only saw a -1% decline on the month in June.
If May’s average weekly earnings data picks up as forecast this could encourage GBP exchange rates to recover more ground on Tuesday.
Evidence that wage growth is picking up would give BoE policymakers greater reason to leave interest rates on hold in the near future, limiting the risk of an imminent rate cut.
However, a decline in the latest UK consumer price index data may leave the pound on the back foot if inflationary pressure shows fresh signs of stalling.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]
ECB’s dovish outlook leaves euro struggling to find support
As the ECB continued to shift towards a dovish policy bias the euro was lacking support last week, with markets increasingly pricing in the prospect of policy easing.
Another sharp month of decline in German industrial production added to worries over the outlook of the Eurozone’s powerhouse economy, even as export volumes picked up.
EUR exchange rates also came under pressure as a result of a sharp decline in the Eurozone Sentix investor confidence index, suggesting that further economic weakness is on the way.
The euro was able to return to a positive footing on Friday as overall Eurozone industrial production data bettered forecasts, but further losses could be on the horizon if tomorrow’s ZEW economic sentiment surveys show a decline in confidence.
As long as the economic outlook continues to deteriorate the upside potential of EUR exchange rates remains limited.
Confirmation that the Eurozone consumer price index eased at the end of the second quarter may put additional pressure on the euro.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]
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* Information courtesy of Currencies Direct, Philip McHugh
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)
The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information. This article was written by Currencies Direct.
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