Pound slumps as BoE outlook shifts towards rate cut

Philip McHugh September 30th 2019 - 2 minute read

  • Unexpectedly dovish BoE commentary drives pound lower
  • Euro braces for fresh German inflation data
  • Market risk appetite limits US dollar appeal

Confirmation of soft UK growth set to add to pound losses
Comments from Bank of England (BoE) policymaker Michael Saunders prompted the pound to trend sharply lower ahead of the weekend.
As Saunders indicated that the BoE’s next move could be an interest rate cut rather than a hike the mood towards the pound soured.
With the finalised second quarter UK gross domestic product data expected to confirm that the economy lost momentum on the quarter, the potential for GBP exchange rate gains appears limited.
Euro vulnerable to weakening German inflation
Although August’s German producer price index saw a further contraction this failed to weigh on the euro.
The impact of the report was limited as markets have already priced in higher odds of the European Central Bank (ECB) enacting further monetary loosening before the end of the year.
However, with the headline German consumer price index looking set to weaken on the year the euro could dip today.
Signs of manufacturing weakness forecast to weigh on US dollar
A mixed bag of US data and an improvement in market risk appetite saw the US dollar fall out of favour on Friday.
This bearishness could persist if September’s Dallas Fed manufacturing index weakens as forecast this afternoon.
Investors expect to see fresh evidence of a loss of momentum within the US manufacturing sector, something which would raise the risk of a wider economic slowdown.
Unless the sector delivers a stronger performance USD exchange rates may struggle to return to a positive footing in the near term.
Upcoming Data:
Monday, 30th September 2019
09:30 GBP Gross Domestic Product
13:00 EUR German Consumer Price Index
15:50 USD Dallas Fed Manufacturing Index

Written by
Philip McHugh

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