Even as the UK government continued to set out its stall on the subject of Brexit confidence in the Pound remained relatively muted.
Investors were not particularly encouraged even after July’s UK public sector net borrowing figure bettered forecasts, showing an unexpected surplus of 0.76 billion.
While government borrowing fell on the month this was not enough to foster particular optimism in the domestic outlook, given that the UK deficit remains rather wider than markets would like.
Given the significant degree of Brexit-based volatility that continues to hang over the domestic economy the Pound is likely to maintain its bearish bias for the foreseeable future.
Any developments in the Brexit discourse are likely to provoke volatility for GBP exchange rates, particularly if the government fails to soften its stance on any of the key issues.
So long as the two sides appear to be no closer to an agreement over major details such as the proposed divorce bill this could maintain downside pressure on the Pound.
Even so, as markets anticipate no change in the second estimate of the UK second quarter gross domestic product this may offer some support to Sterling this week.
If growth shows signs of weakening further than initially thought, however, this could weigh heavily on the Pound Euro exchange rate.
ECB Comments Set to Alter Euro Outlook
The Euro is likely to see greater volatility in the coming days as investors await the latest comments from European Central Bank (ECB) President Mario Draghi.
However, as analysts at HSBC noted:
‘The elevated level of the EUR also creates asymmetric risks around ECB rhetoric, notably that of President Draghi. He is due to speak in Germany on 23 August and then will attend the Jackson Hole economic symposium, which runs from 24-26 August. Reuters, citing ECB sources, suggests he is unlikely to announce any policy change. For us, this means the risks are to the downside for EUR in terms of his observations or comments.’
If markets fail to see any signs of hawkishness in Draghi’s commentary this could give the GBP EUR exchange rate a strong boost ahead of the weekend.
On the other hand, as investors have shown a tendency to overreact to even small changes in vocabulary from central bank policymakers the Euro may be able to hold onto some of its strength for the time being.
Persistent US Dollar weakness could also support the single currency in the near term, with market doubts over the capabilities and stability of the Trump administration encouraging investors to sell out of the ‘Greenback’.
Comments are closed.