Spanish No Confidence Debate Boosts Pound Sterling Euro (GBP/EUR) Exchange Rate
UPDATE: As the Spanish parliament began its debate over a motion of no confidence in Prime Minister Mariano Rajoy the Pound Sterling to Euro (GBP/EUR) exchange rate found fresh strength.
With Rajoy’s future looking vulnerable, confidence in the Euro (EUR) eased once again, as investors remain wary of any fresh political disruption within the Eurozone.
Unless markets see signs that Rajoy could survive the vote the GBP/EUR exchange rate is likely to remain on a more positive footing in the near term.
Pound Sterling Euro (GBP/EUR) Exchange Rate Falters on Stronger Eurozone Inflation
The Pound Sterling to Euro (GBP/EUR) exchange rate came under renewed pressure on Thursday as worries surrounding the Italian political situation temporarily eased.
Fears over the prospect of an imminent election diminished as the Five Star Movement and League made fresh efforts to form a workable coalition, giving investors an incentive to buy back into the Euro (EUR).
Although concerns remain over the prospect of a Eurosceptic Italian government this was still enough to set EUR exchange rates on a positive footing once again.
Following the stronger-than-expected German consumer price index, markets are hopeful that inflationary pressure is picking up across the currency union; something which would give the European Central Bank (ECB) an incentive to tighten monetary policy and taper its bind-buying scheme.
A similarly positive showing from the Eurozone consumer price index helped to shore up the Euro further.
Acceleration in UK Consumer Credit Boosts GBP/EUR Exchange Rate
A sharp increase in UK net consumer credit offered support to the Pound Sterling to Euro (GBP/EUR) exchange rate, meanwhile.
As consumer credit surged by £1.8 billion in April, the largest increase since November 2016, the mood towards Pound Sterling (GBP) improved.
This suggests that the sharp slowdown in credit growth in March was not the start of a trend, giving the Bank of England (BoE) fresh cause for confidence.
Higher levels of credit availability should help to drive economic growth in the months ahead, helping to offset the negative impact of lingering Brexit-based anxiety.
Although the odds of any imminent BoE interest rate action remain limited this stronger showing was still enough to shore up GBP exchange rates on Thursday morning.
Pound Sterling Euro (GBP/EUR) Exchange Rate Volatility Forecast on UK Manufacturing PMI
Further gains could be in store for the Pound Sterling to Euro (GBP/EUR) exchange rate ahead of the weekend if the UK manufacturing PMI proves encouraging.
However, forecasts point towards a dip in the PMI from 53.9 to 53.5 in May, suggesting that the sector is struggling to find fresh momentum.
Signs that the UK economy is not picking up in the second quarter could weigh heavily on GBP exchange rates, especially as Brexit-based uncertainty hangs over the domestic outlook.
Even so, if next week’s services PMI prints positively this is likely to limit the downside potential of the GBP/EUR exchange rate, given that the service sector accounts for more than three quarters of UK economic activity.
GBP/EUR Exchange Rate to Benefit from Spanish and Italian Political Uncertainty
Political jitters may give the Pound Sterling to Euro (GBP/EUR) exchange rate another boost in the near term as Spanish Prime Minister Mariano Rajoy faces a vote of no confidence.
If Rajoy is ousted this would plunge another key Eurozone country into a state of political turmoil, giving the Euro fresh cause for weakness.
As the situation in Italy is still far from resolved there is a risk that attempts to create a coalition could collapse once again, putting additional downside pressure on EUR exchange rates.
As long as the threat of a fresh Eurozone crisis hangs over the single currency this is likely to limit the vulnerability of the Pound Sterling to Euro (GBP/EUR) exchange rate.