Pound Euro (GBP/EUR) Exchange Rate Remains Under Pressure From Brexit Anxiety
Worries over Brexit have continued to weigh on the Pound Sterling to Euro (GBP/EUR) exchange rate this week as the UK government remains at a deadlock on the issue of the customs union.
As the two camps within Theresa May’s cabinet are still unable to find a compromise over whether the UK should remain a member of the customs union after Brexit or not the Pound (GBP) has remained under pressure.
With Brexit negotiations continuing to drag out the mood of GBP exchange rates has naturally soured, with investors seeing less incentive to favour the Pound at this stage.
In the absence of any fresh UK data the GBP/EUR exchange rate may struggle to find any particular traction ahead of the weekend, unless there is fresh progress on the subject of Brexit.
Improved Eurozone Construction Output Weighs on GBP/EUR Exchange Rate
While Eurozone construction output did not pick up as far as forecast in March the modest improvement on the month was still enough to dent the Pound Sterling to Euro (GBP/EUR) exchange rate.
As growth in construction output accelerated from 0.2% to 0.8% this gave investors incentive to buy into the Euro (EUR) on Thursday morning.
Although concerns remain over the economic outlook of the Eurozone, given the slowdown seen in the first quarter German gross domestic product, EUR exchange rates nevertheless returned to a stronger footing.
With markets confident that the currency union will continue to outpace its economic rivals over the coming year, in spite of any loss of momentum, the downside potential of the Euro has been limited.
Pound to Euro Exchange Rate Vulnerable to Wider Eurozone Trade Surplus
Further pressure is likely in store for the Pound to Euro (GBP/EUR) exchange rate on Friday, with forecasts pointing towards a widening of the Eurozone trade surplus.
If the surplus widens from 18.9 billion to 27.9 billion as anticipated this would boost confidence in the outlook of the Eurozone economy moving forward.
However, given the current US rhetoric on trade a significantly wider trade surplus could provoke fresh attention from the Trump administration, something which could weigh on the Euro.
Any improvement in trade conditions is unlikely to be enough to materially alter the outlook of the European Central Bank (ECB), meanwhile.
As long as the central bank looks set to leave monetary policy on hold EUR exchange rates are unlikely to maintain any particular sense of bullishness.
Rising UK Inflation Forecast to Boost Pound Sterling to Euro (GBP/EUR) Exchange Rate
The Pound to Euro (GBP/EUR) exchange rate could find a rallying point next week, however, if the UK consumer price index strengthens.
Any uptick in domestic inflationary pressure would encourage the Pound to push higher once again, improving the odds of the Bank of England (BoE) raising interest rates in 2018.
Even after the somewhat disappointing nature of Tuesday’s wage growth data signs of stronger inflation may return GBP exchange rates to an uptrend.
On the other hand, if price pressures continued to ease in April the appeal of the Pound is likely to deteriorate further.
Unless markets see reason to bet on the prospect of an upcoming BoE interest rate hike the strength of the Pound to Euro (GBP/EUR) exchange rate looks set to remain limited.
Update: ECB Comments Fail to Shore up Pound Euro (GBP/EUR) Exchange Rate
Comments from European Central Bank (ECB) vice president Vitor Constancio offered the Pound to Euro (GBP/EUR) exchange rate nothing in the way of support on Thursday afternoon.
However, Constancio’s calls for a push towards greater monetary and economic union highlighted the risk that the potential populist government in Italy could pose to the future stability of the Eurozone.
If the Eurosceptic alliance does assume power in Italy this could see Euro (EUR) exchange rates fall into a sharp slump as markets reassess the Eurozone’s political and economic outlook.