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GBP/EUR, GBP/USD Exchange Rate Forecast: Pound Dovish as Increase in UK Deficit Dampens 2016 BoE Rate Hike Hopes

Pound (GBP) Increasingly Bearish after Disappointing UK Public Sector Borrowing Figure to Benefit of Euro (EUR) and ‘Buck’ (USD)

In spite of Eurozone Consumer Confidence having fallen further than expected in September, from -6.9 to -7.1, the GBP/EUR exchange rate remains on a downtrend this morning in the region of 1.3783 .

Meanwhile, the US House Price Index for July produced a stronger showing than anticipated to push the GBP/USD pairing into a further slump at 1.5331.

Earlier…

UK Public Sector Net Borrowing in August was today revealed to have increased to 11.3 billion Pounds, spurring the Pound (GBP) to enter a downturn across the board this morning.

Euro Softened as German Producer Prices Contracted, Sterling Capitalised to Advance GBP/EUR Exchange Rate to Monthly Best

Although the results of Sunday’s Greek general election were significantly less uncertain than had been feared, with former Prime Minister Alexis Tsipras producing a solid victory over his conservative rivals, the outlook of the Hellenic nation remains something of a question. With the first post-bailout inspection from creditors now on the horizon there remains a lot to be done to implement the necessary austerity measures on which further financial aid rests. Thus, after a more minor rally at the beginning of the week the Euro (EUR) was not long buoyed by optimism, particularly after German Producer Prices data proved disappointing.  Signalling that the inflationary outlook of the Eurozone’s prime economy remains rather dismal, this spurred the GBP/EUR exchange rate to enter a strong uptrend throughout the rest of the day, peaking at 1.3867.

UK Public Sector Borrowing More Bearish than Forecast Today to send GBP/EUR Currency Pair into Slump

Movement on the GBP/EUR conversion rate was of a fairly narrow range this morning as pundits awaited the release of the UK’s Public Sector Net Borrowing figure for August. With a significant increase in borrowing expected, of 8.8 billion Pounds (GBP), the UK economy may have been weighed down by a greater budget deficit in the previous month. This bearishness is unlikely to be Pound-supportive, particularly as hawks have been continuing to hope for a Bank of England (BoE) interest rate increase in the nearer future. As the figure ultimately printed higher than forecast, at 11.3 billion Pounds, the GBP/EUR exchange rate was quick to shed value to downtrend in the region of 1.3829.

The common currency may rally further on tomorrow’s raft of September PMI figures for Germany and the Eurozone as a whole, although expectations are for a round of new shortfalls to be posted. Weaker than anticipated data would also stand to increase the pressure on the European Central Bank (ECB) to engage in further monetary loosening measures in the wake of the Fed’s recent dovishness and the persistent concerns of the global economic slowdown.

GBP/USD Conversion Rate Failed to Rally on Drop in US Existing Home Sales as ‘Buck’ Clawed Back Recent Losses

Traders have continued to adjust to the dovish tone of the Federal Open Market Committee (FOMC) after policymakers voted to leave interest rates on hold at 0.25% last week, with speculation turning to the possibility of a rate hike still coming before the end of the year. The still softened ‘Greenback’ (USD) was not given much support yesterday at the domestic month-on-month Existing Home Sales for August were revealed to have contracted by more than forecast, falling -4.8% and indicating that the local housing market and wider economy continues to feel the effects of the global slowdown. However, as this seemed to lend credence to the FOMC decision the GBP/USD currency pair remained on a general downtrend.

‘Buck’ (USD) May Weaken on Upcoming US House Price Index as Pound (GBP) Slips on Increase in UK Government Borrowing

Following the release of the disappointing UK Public Sector Net Borrowing figure the GBP/USD exchange rate has continued to move bearishly, falling to trend in the range of 1.5466 at time of writing.

This afternoon’s US House Price Index seems likely to see another shortfall following Monday’s disappointment, in spite of predictions, although the ‘Buck’ could continue to regain its strength ahead of some of the week’s more critical data. Domestic PMIs and the Durable Goods Orders figure are expected to show declines, but any positive results produced may boost the ‘Greenback’ to the further detriment of the GBP/USD pairing.