The Pound to Euro exchange rate slid by around -150 pips last week to its lowest level in three weeks as underwhelming UK ecostats and concerns about the future of Prime Minister Theresa May conspired to reduce the appeal of the UK currency.
GBP/EUR Slides to 3-Week Low on UK Political Anxieties & Soft Data
Amid rumours that UK foreign secretary Boris Johnson could be planning to usurp Prime Minister Theresa May, sentiment towards Sterling remained soft last week.
Matters were made worse when British private sector data painted a worrying picture of the UK economy.
While Eurozone manufacturing output jumped to a six-year high of 58.1, the UK equivalent decelerated from 56.7 to 55.9 and the British construction sector saw its first month of negative growth for over a year, with a shock score of just 48.1. Luckily, the dominant service sector saw growth inch higher from 53.2 to 53.6, but it was not enough to materially alter demand for the Pound.
Biggest Threat to Pound to Euro Exchange Rate This Week is Further Political Unrest
In terms of GBP/EUR exchange rate movement, there are a couple of key announcements to keep an eye on this week, including the UK industrial production report on Tuesday and a media appearance from European Central Bank (ECB) President Mario Draghi on Thursday.
The UK industrial production report is tipped to see a mild uptick in annualised output from 0.4% to 0.9%, which could give Sterling a little boost, while any negative surprises could have the opposite effect.
ECB President Mario Draghi’s appearance is part of a panel discussion in Washington, meaning he is unlikely to focus heavily on European monetary policy – although there is always the possibility that he could move markets by dropping new hints as to when the bank intends to begin tapering its QE programme.
Overall, the thin economic docket means that UK political concerns could once again dominate GBP/EUR sentiment. Although UK PM Theresa May has attempted to quell speculation over her leadership credentials by vowing to fight on, there is potential for Sterling to suffer if the PM experiences any further hiccups over the coming days and weeks.
If May’s fragile position is seen to negatively impact Britain’s ability to negotiate a new Brexit trade deal, the Pound could continue to come under selling pressure.