Fears of Escalating US-EU Trade War Limit EUR/GBP Exchange Rate Gains ahead of G7 Meeting
UPDATE 15:56 BST: The Euro (EUR) has held its ground against Pound Sterling (GBP) this afternoon, although uncertainty about the G7 summit has prevented a EUR/GBP exchange rate rally.
This meeting of nations with the largest economies in the world threatens to cause divisions among those attending, rather than bringing about greater unity.
US President Donald Trump is the main factor behind these concerns – Mr Trump has been vocal about wanting to renegotiate trade deals with other G7 members:
Looking forward to straightening out unfair Trade Deals with the G-7 countries. If it doesn’t happen, we come out even better!
— Donald J. Trump (@realDonaldTrump) June 8, 2018
EU representatives are among those attending the G7 summit and the fear is that Mr Trump’s actions could worsen the current trade war between the US and EU nations.
Fresh Uncertainty over Brexit Causes Euro to Pound (EUR/GBP) Exchange Rate Improvement
UPDATE 14:33 BST: The Euro (EUR) has recovered from its earlier losses against Pound Sterling (GBP) and is now trading tightly.
This improvement for the EUR/GBP exchange rate is down to UK developments, in particular the Brexit ‘backstop’.
This piece of legislation, designed to prevent a hard Irish border if Brexit talks fail, has been rejected by EU Brexit negotiator Michel Barnier.
Mr Barnier has disagreed with the general nature of the measure, saying:
‘Our backstop cannot be extended to the whole of the UK.’
The backstop would allow parts of the UK to remain tied to existing customs union arrangements, which some critics say is not compatible with leaving the EU.
UK negotiators could still get the backstop approved if it is reduced to cover Northern Ireland alone, but this still represents another setback in Brexit talks.
Poor German Industrial Figures Trigger EUR/GBP Exchange Rate Losses
The Euro (EUR) has lost ground to the stronger Pound (GBP) today, although the EUR/GBP dip only puts the pairing at its lowest level since Wednesday.
The single currency has been weakened by the latest German economic data, which has proven disappointing on two counts.
Firstly, the morning’s German trade balance readings for April showed a reduction in the existing surplus for the base and seasonally-adjusted figures.
The reductions have still left Germany with a sizable trade surplus, but the seasonally-adjusted figure showed larger-than-expected shrinkage.
The other bit of disappointing data has been Germany’s industrial production reading for April, contracted by -1%. This was worse than the predicted shift from 1% growth to a lesser 0.3%.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Rises on Softer EUR
There hasn’t been much positive UK news today, which has instead meant that the weaker Euro (EUR) has raised demand for the Pound (GBP).
The latest UK news has been concerning if anything, with leaked recordings showing that Foreign Secretary Boris Johnson is predicting a Brexit ‘meltdown’.
The leak has been particularly concerning for Pound traders because back in 2016, Mr Johnson was one of the most vocal supporters of the UK’s exit from the EU.
A recent storm in a teacup over the Brexit ‘backstop’ contingency plan has further lowered confidence among Pound traders, limiting GBP/EUR exchange rate gains today.
Euro to Pound Exchange Rate Forecast: Are EUR/GBP Exchange Rate Gains ahead on ECB Meeting?
The Euro (EUR) might be able to rise sharply against the Pound (GBP) in the coming week, when European Central Bank (ECB) policymakers hold a meeting on Thursday afternoon.
The ECB monetary policy meeting isn’t expected to bring an interest rate hike from the current 0% level, but remarks from policymakers might still be enough to boost the Euro.
The main focus will be on ECB President Mario Draghi, who will give a press conference after the interest rate decision is announced.
If Mr Draghi backs recent statements from the ECB’s Peter Praet and suggests that quantitative easing (QE) could be ending then a EUR/GBP exchange rate rally could occur.
Such a hint or suggestion wouldn’t mean an overnight wind-down of QE, but could still be the first step towards an ECB interest rate hike in the future.
Weekly Pound Sterling Forecast: Can GBP/EUR Exchange Rate Rise on Higher UK Wage Growth?
On the other side of the pairing, the Pound to Euro (GBP/EUR) exchange rate might move when UK wage and inflation rate data is released on Tuesday and Wednesday.
Both data releases could push Pound Sterling up against the Euro if they show growth.
A faster pace of wage growth will suggest a strong economy, while higher inflation will put pressure on the Bank of England (BoE) to consider an interest rate hike.