A lack of fresh Brexit-based confidence has left the Pound Euro exchange rate on a renewed downtrend, despite disappointing Eurozone data.
- GBP boost from BoE comments and High Court ruling fades – Pound Euro exchange rate weighed down by weaker housing market data
- Euro dented as German factory orders contracted on month – Signs of weakness from Eurozone’s powerhouse economy prompted investor bearishness
- Election optimism shored up US Dollar – Outcome of vote set to provoke fresh GBP USD exchange rate volatility
- Stronger UK production figures could bolster Sterling – UK economic resilience may encourage greater demand for Pound
Disappointing Eurozone Retail Sales Kept GBP EUR Exchange Rate on Uptrend
Market confidence remained buoyed throughout Monday’s European session, with investors still optimistic in the chances of Hillary Clinton winning the presidential election. This kept the GBP USD exchange rate under pressure, continuing to trend lower in the region of 1.24.
A slight weakening in Eurozone retail sales saw the single currency softened further, meanwhile. As this suggested that consumer demand within the currency union has lessened the GBP EUR pairing was prompted to trend higher at 1.12.
(Previously updated at 16:46 07/11/16)
Meanwhile, demand for the US Dollar has picked up thanks to the FBI closing its investigation against Hillary Clinton, boosting hopes of a Democrat victory.
Dwindling Brexit Optimism Saw Pound (GBP) Exchange Rates Weaken
Confidence in the Pound (GBP) was diminished once again at the start of the week, with the earlier boost of the less dovish Bank of England (BoE) and High Court Brexit ruling having faded. As the government is pressing ahead with its plans to trigger Article 50 in March investors remain nervous over the possibility of a hard Brexit. This limited the appeal of Sterling on Monday morning, particularly after the latest Halifax House Price Index proved to be something of a disappointment. With the domestic housing market showing fresh signs of slowing the outlook of the wider UK economy appeared to be less encouraging.
Recovering Pound appeal could boost GBP exchange rates on Tuesday, however, if the latest raft of industrial and manufacturing production figures prove positive. Markets are anticipating a modest uptick on the month, although manufacturing output is predicted to have faltered on the year in September. A stronger showing here could boost the Pound with the suggestion that the UK remains in a robust state despite ongoing Brexit-based uncertainty. Any disappointment, though, would likely prompt further Sterling selling.
GBP EUR Exchange Rate Trended Lower Despite Disappointing German Orders Data
While the German Construction PMI edged high in October this failed to offer the Euro (EUR) any particular boost. Demand for the single currency was diminished by a disappointing set of German factory orders figures, which showed an unexpected contraction on the month. This undermined confidence in the outlook of the Eurozone’s powerhouse economy, something that does not bode well for the wider currency union. As Carsten Brzeski, Chief Economist at ING, noted:
‘The German industry is still running low on fuel. New orders have actually been stagnating for almost two years now. While in 2014, new orders on average increased by 0.4% every month, they dropped by an average 0.2% in 2015 and currently show a meagre 0.1% average monthly growth rate for the first nine months of 2016. It is hard to see how the German industry can shift to higher gear.’
With that in mind, investors will be keen to see the next raft of German data, which includes industrial production and trade figures. If the economy shows further signs of weakness then the Pound Euro (GBP EUR) exchange rate is likely to regain some ground, given that the Eurozone’s momentum remains primarily reliant on German growth. However, as forecasts point towards a widening of the domestic trade surplus the single currency could find fresh support here instead.
US Dollar (USD) Volatility Forecast as Presidential Race Draws to an End
Although the final result of the US presidential election is mere days away the US Dollar (USD) has been rallying strongly. This was in response to another announcement from the FBI, which signalled that it had not changed its conclusions from its earlier review of Hillary Clinton’s emails. With some measure of doubt removed from the field this encouraged markets to bet that the Democrat candidate is more likely to secure victory. While the result remains far from a done deal at this stage the Pound US Dollar (GBP USD) exchange rate has nevertheless slumped in response.
The ultimate outcome of the election will be the major risk event of the week, with the US Dollar set to see increased volatility regardless of whichever candidate triumphs. Further gains could be in store for the ‘Greenback’ in the event of a Clinton victory, given that markets perceive her as a more stable force, while a Trump win would instigate a fresh wave of selling. Either way, the GBP USD exchange rate will see some sharp movement over the next few days.
Current Interbank Exchange Rates
At the time of writing, the Pound Euro (GBP EUR) exchange rate was trending lower in the region of 1.12, while the Pound US Dollar (GBP USD) pairing was slumped around 1.23.