Pound capped by Brexit uncertainty as vaccine optimism grows
[vc_row][vc_column][vc_column_text]A weaker-than-expected monthly UK GDP reading left the pound on a weaker footing against its rivals.
Support for the euro proved limited, meanwhile, as European Central Bank (ECB) policymakers issued fresh warning over the health of the Eurozone economy.
With US inflation softening, the US dollar struggled to find support against its rivals, especially in the face of rising risk appetite.
The New Zealand dollar rallied, on the other hand, as the Reserve Bank of New Zealand (RBNZ) proved less dovish at its November policy meeting.
While the third quarter UK GDP revealed record 15.5% growth, this failed to keep GBP exchange rates from shedding ground last week.
As the monthly growth rate slowed from 2.2% to 1.1% in September, this suggested that the economy continued to lose its recovery momentum at the end of the third quarter.
This encouraged bets that the economy could shed further momentum in the final three months of the year, especially in the face of the second national lockdown and Brexit-based uncertainty.
A continued lack of progress towards a draft Brexit deal also added to the bearish mood as focus increasingly turned towards an imminent deadline.
If the two sides are unable to solve the key roadblocks to a deal ahead of Thursday’s meeting of EU leaders, the mood towards the pound could sour further.
On the other hand, GBP exchange rates may find a rallying point on the back of October’s UK consumer price index.
As forecasts point towards the headline inflation rate picking up from 0.5% to 0.6% this could offer the Bank of England (BoE) less cause for concern, boosting the appeal of the pound.
With European Central Bank (ECB) policymakers continuing to warn of an impending economic slowdown, the appeal of the euro proved largely limited.
As the ECB looks set to enact fresh monetary loosening measures in December, the upside potential of EUR exchange rates diminished.
Meanwhile, the second estimate of the third quarter Eurozone GDP weighed heavily on the euro after the headline growth rate saw a surprise negative revision.
A resurgence in market risk appetite also put pressure on the single currency as progress towards another viable Covid-19 vaccine drove investors back to higher-yielding assets.
As long as Eurozone economies continue to show signs of weakness in the face of ongoing Covid-19 restrictions, this could keep the euro on a weaker footing.
Friday’s flash Eurozone consumer confidence index reading may equally drag on the single currency, with forecasts suggesting a fresh decline on the month.
A further decline in consumer sentiment would not bode well for the fourth quarter outlook, leaving EUR exchange rates exposed to further selling pressure.[/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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