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An unexpected shift towards dovishness from the Bank of England (BoE) saw the pound come under renewed pressure ahead of the weekend

Increasing concerns over the health of the German economy limited the appeal of the euro, with the industrial sector remaining under pressure thanks to global trade worries.

Growing doubts over the likelihood of an imminent US-China trade deal offered a leg up to the US dollar, meanwhile, as market risk appetite faltered.

Unexpected split among BoE policymakers fuels pound sell-off

GBP exchange rates fell as two Bank of England (BoE) policymakers voted in favour of an immediate interest rate cut at the central bank’s latest gathering.

The odds of a 2020 interest rate cut jumped in the wake of Thursday’s policy announcement, with the BoE appearing more dovish than investors anticipated.

As markets moved to price in a higher likelihood of interest rates being cut in the near future the mood towards the pound naturally soured.

However, GBP exchange rates were able to recover some of their lost ground on the back of the third quarter UK gross domestic product data.

Although economic activity remained muted compared to the UK’s long term trend investors were still relieved to find that growth had picked up 0.3% on the quarter, avoiding a technical recession.

Even so, further weakness may be in store for the Pound if Wednesday’s consumer price index eases as forecast.

If the headline inflation rate falls further away from the BoE’s 2% target this would give policymakers further incentive to cut interest rates, leaving GBP exchange rates exposed to additional selling pressure.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]

Euro struggles, Germany remains on track to enter technical recession

Confidence in the outlook of the German economy continued to deteriorate thanks to another sharp contraction in industrial production, leaving the euro on a weaker footing.

As production declined -4.3% on the year in September this added to fears that Germany fell into a state of technical recession in the third quarter.

With the Eurozone’s powerhouse economy still showing signs of a slowdown in the face of weakening global trade investors saw little incentive to favour the single currency.

Even though September’s German trade balance showed a larger than expected widening of the surplus this was not enough to give EUR exchange rates any significant boost.

Signs of improvement from the latest set of ZEW economic sentiment surveys may offer the euro a rallying point on Tuesday, however.

Although the indexes are expected to remain trapped in negative territory any uptick on the month could help to ease market anxiety over the strength of the Eurozone’s economic outlook.

Confirmation that the German economy slowed further in the third quarter looks set to drag EUR exchange rates lower across the board, though.

Unless the Eurozone’s powerhouse economy can avoid another quarter of contraction the appeal of the euro is likely to weaken.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]

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