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Pound Exchange Rates Muted vs Euro, US Dollar as Consumer Confidence Weakens

Even though the third quarter UK growth data surprised to the upside this failed to keep Pound exchange rates on a stronger footing for long, thanks to persisting Brexit fears.

  • Weaker consumer confidence dragged on Pound exchange rates – Outlook of UK economy remains uncertain
  • Euro trended higher despite underwhelming French growth figures – Strong Spanish GDP eased fears over Eurozone economy
  • GBP USD exchange rate volatility expected on US GDP – Solid improvement expected to boost Fed rate hike odds
  • Bank of England forecast to remain on hold in November – Pound upside pressure to remain limited

Volatility is expected for both the Euro and US Dollar ahead of the weekend, though, with the latest German inflation and US growth data set to move markets.

Pound (GBP) Exchange Rates Forecast to Remain Under Pressure on Continued Brexit Recession Fears

The Pound (GBP) experienced a limited boost against rivals on the back of the third quarter UK GDP report, despite growth bettering forecasts. While the quarterly figure clocked in at 0.5%, rather than 0.3%, this growth was solely driven by the service sector; something which does not bode overly well for the resilience of the economy as a whole. News that Nissan was committing to build two new car models at its plant in Sunderland also offered some support to GBP exchange rates, although investors remained concerned over the lack of transparency in the government’s approach to Brexit.

Demand for Sterling remained limited on Friday morning, thanks to a fresh dip in the GfK Consumer Confidence Survey. Optimism amongst the British public deteriorated from -1 to -3 in October, suggesting that the outlook remains far from rosy at this juncture. While markets remain confident that the Bank of England (BoE) will not opt to loosen monetary policy at its November meeting upside pressure for the Pound is nevertheless likely to stay limited in coming days. As analysts at Wells Fargo noted:

‘The Bank of England (BoE) stands by to provide further rate cuts/accommodative monetary policy if the economy looks like it cannot stay afloat on its own. However, given today’s stronger-than-expected GDP print, we now expect the BoE to remain on hold next week and wait until early next year, when signs of a weakening economy surface, before cutting rates.’

Disappointing French Growth Figures Failed to Weigh on Euro (EUR) Demand

Despite the third quarter French GDP figures falling short of expectations this failed to dent the Euro (EUR). With France still in comfortable growth territory and Spain showing another strong quarter despite its political problems investors were encouraged to continue favouring the single currency. Confidence in the outlook of the currency union has been boosted by renewed progress on the EU-Canada free-trade deal, even though investors continue to expect some dovish action from the European Central Bank (ECB) in December.

The Pound Euro (GBP EUR) exchange rate could make some modest gains ahead of this afternoon’s German Consumer Price Index. While forecasts point towards another small uptick in inflationary pressure, the risk of a downside surprise is likely to weigh on the Euro ahead of the report. Should inflation be confirmed to have strengthened within the Eurozone’s powerhouse economy, though, the single currency is expected to trend sharply higher.

GBP USD Exchange Rate Weakness Forecast on Robust US GDP Report

Thursday saw another raft of mixed US data, with jobless claims showing some improvement even as pending home sales weakened on the year. This painted a less-than-clear picture of conditions within the world’s largest economy, muddying the waters over the prospect of the Federal Reserve raising interest rates before the end of the year. Particularly disappointing was the unexpected contraction in durable goods orders, which indicated that consumer confidence has faltered. Even so, the weakness of Sterling prevented the Pound US Dollar (GBP USD) exchange rate from capitalising on this weaker showing.

A stronger boost for the ‘Greenback’ could materialise if the third quarter US GDP is found to have increased in line with forecasts. Investors are anticipating a strong uptick from 1.4% to 2.5%, something which could encourage a more hawkish outlook from the Federal Open Market Committee (FOMC). However, the GBP USD exchange rate could benefit from a weakening in the latest personal consumption figure. Given that this is tied to the Fed’s preferred measure of inflation a weaker result here could see the US Dollar dented by falling odds of an imminent rate hike.

Current Interbank Exchange Rates

At the time of writing, the Pound Euro (GBP EUR) exchange rate was slumped around 1.11, while the Pound US Dollar (GBP USD) pairing was trending narrowly in the region of 1.21.