Politics, Not Economics, Likely to Direct Pound Exchange Rate
Direction for the British Pound (GBP/EUR, GBP/USD) exchange rate next week is likely to be influenced significantly by a series of political events. On Tuesday, the result of the Conservative leadership election is expected to be announced, with Boris Johnson still the clear favourite. On Wednesday, Theresa May will head to Buckingham Palace to tender her resignation, obliging The Queen to appoint a new Prime Minister. This is when matters have the potential to get interesting, as the appointee should be able to command a majority government and Boris Johnson’s hard-line Brexit stance makes this difficult.
Assuming The Queen does call for him to take the role, there’s speculation that a no confidence motion in the new government will be tabled although the question is whether this can be attempted before Parliament breaks for the summer on Friday. There’s a whole host of questions which will be answered in the coming days and anything that removes some elements of uncertainty could see Sterling finding at least a modicum of support.
Euro Forecast: European Central Bank to Show Monetary Policy Hand
On Thursday, the European Central Bank (ECB) will announce its latest views over monetary policy. With Eurozone economies continuing to struggle, pressure will be mounting on Mario Draghi to provide further stimulus to the market. Although no action is expected, forward guidance over intterest rates is expected to point towards a rate cut in September. Confirmation of this could see the Euro US Dollar exchange rate (EUR/USD) fall back, with the potential for the pair to break below the two-year lows which were last tested in May.
US Economic Growth Set to Stall; US Dollar may Weaken
The flash US Q2 Gross Domestic Product (GDP) data will be published on Friday, with expectations being that economic expansion will show signs of slowing. A print of just 1.8% is being forecast, well down from the 3.1% reported for the previous quarter and the lowest rate seen since Donald Trump took office at the start of 2017. There are increasing signs that the trade war with China is taking a toll on the world’s largest economy, and anything that comes in worse than expected could heap further pressure onto the Federal Reserve to push through a rate cut at next week’s Federal Open Market Committee (FOMC) meeting. That, in turn, would at least go some way to placating the White House in its quest for economic growth and also have the scope to lend some support to the British Pound US Dollar exchange rate (GBP/USD), although the UK’s political disarray could well limit gains.
Update: The Pound to Euro and US Dollar (GBP/EUR, GBP/USD) exchange rates have begun Monday’s European session trading in a tight range as markets wait for political developments to unfold. The announcement of a new British PM and rising tensions with the Middle East could be two factors to cause movement this week.