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Brexit hangs over pound, euro boosted by Bundesbank forecast

currency-newsBrexit hangs over pound, euro boosted by Bundesbank forecast
A virtually empty economic calendar for the UK left the pound on mixed form yesterday, reacting to strength or weakness in its major peers.

Today the pound is declining virtually across the board. GBP/EUR is trending at €1.0918, while GBP/USD is in the region of US$1.2875. GBP/AUD has dropped to AU$1.6210, with a similar drop seen for GBP/CAD to C$1.6165. GBP/NZD is holding just below opening levels at NZ$1.7595.

UK government borrowing figures today could boost to the pound. Markets are expecting a surplus this month, but read on to find out why that may not be good enough…

What’s been happening?

There was little of note on the UK economic calendar yesterday, although house price data from Rightmove showed that prices declined -0.9% in August, adding to the growing fears around the health of the property sector.

Markets were somewhat cheered to see that the UK government had released some positioning papers for the Brexit negotiations, although there is still the issue of the ‘divorce’ bill to overcome before talks can move forward.

GBP/EUR was on the decline after Bundesbank economists claimed that the German economy may be on track to grow faster than analysts currently expect. They cited strong confidence amongst business owners and consumers, as well as the solid performance seen recently in the industrial sector.

In June Bundesbank forecast GDP growth of 1.9% for the Eurozone’s powerhouse economy, so their economists are now expecting growth could breach 2%.

There was nothing particularly notable on the US data calendar, but GBP/USD was able to make gains as the odds of a December interest rate hike from the Federal Reserve were barely above 40%.

What’s coming up?

The pound could be supported today by the UK’s public sector borrowing figures. July is traditionally a strong month for public finances because corporation tax is payable. Markets are therefore expecting a surplus; if that surplus is weak - or worse, non-existent - GBP could still slump.

The ZEW German and Eurozone sentiment survey results for August will be released later this morning. The surveys are very influential, so the euro could fall if forecasts of weakening confidence are realised.

The only release on the US economic calendar is house price data for June and the second quarter. Unless there is anything happening on the political spectrum the US dollar could be in for a sluggish day.
Philip McHugh

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)

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