Pound Sterling to Euro (GBP/EUR) Exchange Rate Fails to Capitalise on Weaker Eurozone Production

Softening Eurozone Industrial Production Fails to Boost Pound Sterling Euro (GBP/EUR) Exchange Rate

UPDATE 16:00 BST: Weaker-than-forecast Eurozone industrial production data was not enough to shore up the Pound Sterling to Euro (GBP/EUR) exchange rate on Wednesday.

Although industrial output contracted further than anticipated on the month, falling -0.9%, the Euro (EUR) nevertheless remained on a stronger footing.

With markets betting on the European Central Bank (ECB) taking a more hawkish outlook at tomorrow’s policy announcement the downside potential of the single currency has remained limited.

Pound Sterling Euro (GBP/EUR) Exchange Rate Trends Lower on Underwhelming UK Inflation Figures

UPDATE 11:25 BST: As May’s UK consumer price index held steady at 2.4% on the year this has caused the Pound Sterling to Euro (GBP/EUR) exchange rate to shed further ground.

Investors were not impressed to find that inflation remained at a one-year low, something which could prompt the Bank of England (BoE) to take a less hawkish policy outlook.

With the odds of an August BoE interest rate hike diminished there was little reason to support Pound Sterling (GBP) on Wednesday morning.

Underwhelming Eurozone Economic Sentiment Fails to Boost Pound Sterling to Euro (GBP/EUR) Exchange Rate

UPDATE 16:21 BST: A weaker showing from June’s ZEW economic sentiment surveys was not enough to boost the Pound Sterling to Euro (GBP/EUR) exchange rate.

Even though signs point towards the German and wider Eurozone economies struggling to pick up momentum in the second quarter the mood towards the Euro (EUR) remained positive.

With markets still confident that the European Central Bank (ECB) will adopt a more hawkish outlook on Thursday the upside potential of the GBP/EUR exchange rate looks limited.

Pound Suffers Further Brexit Woes as Phillip Lee Resigns as MP Causing GBP/EUR Slide

UPDATE 14:02 BST: The pound has dropped by around 0.2% against the Euro this afternoon, despite the poor German ZEW economic sentiment survey released earlier.

The main driver for this drop is the ongoing uncertainty regarding the Brexit process, with a Commons vote coming up on whether MPs will get to decide on any final deal.

Compounding this sense of unease, the government has been hit by the resignation of a high-ranking minister, who quit after disagreeing with Prime Minister Theresa May over her handling of the Brexit process.

Phillip Lee announced his resignation, saying that he feared ‘the worst of all worlds will be forced on us,’ in reference to the way he sees the Brexit process going.

Pound Sterling Euro (GBP/EUR) Exchange Rate Benefits From Weaker German Confidence

UPDATE 11:01 BST: A surprise softening of the latest UK average weekly earnings data has left the Pound Sterling to Euro (GBP/EUR) exchange rate on a narrow trend.

While this unexpected faltering of domestic wage growth does not bode overly well for the UK economic outlook it was not enough to prompt further losses for Pound Sterling (GBP).

The GBP/EUR exchange rate also benefitted from a greater-than-expected slump in June’s German ZEW economic sentiment survey, with confidence in the Eurozone’s powerhouse economy continuing to deteriorate.

Pound Sterling Euro (GBP/EUR) Exchange Rate Weighed Down by Weak UK Growth

In another discouraging development for the UK economy the latest NIESR gross domestic product (GDP) estimate proved weaker than forecast, leaving the Pound Sterling to Euro (GBP/EUR) exchange rate on a weaker footing.

Growth in the three months to May was reported at just 0.2%, representing a minor improvement from the sluggish first quarter.

This suggests that the economy is not rebounding as strongly as the Bank of England (BoE) had hoped, leaving Pound Sterling (GBP) on a downtrend.

Pound Sterling to Euro (GBP/EUR) Exchange Rate Boosted by Hawkish BoE Comments

Bank of England (BoE) policymakers proved surprisingly upbeat last week, offering a boost to the Pound Sterling to Euro (GBP/EUR) exchange rate.

Comments from BoE deputy governor David Ramsden seemed to encourage investors to pile back into Pound Sterling (GBP), fuelling expectations that the Monetary Policy Committee (MPC) is ready to raise interest rates in August.

A steady reading from the latest BoE/TNS inflation attitudes survey also offered support to GBP exchange rates, with expectations pointing towards higher levels of inflation.

However, some of the wind was knocked out of the Pound’s sails ahead of the weekend as Brexit-based tensions flared up once again.

With UK and EU negotiators still looking decidedly at odds on key issues such as the Irish border, investors see less chance of any imminent progress towards a final agreement.

Underwhelming German Data Limits GBP/EUR Exchange Rate Downside

Confidence in the underlying health of the Eurozone economy remained limited, meanwhile, to the benefit of the Pound Sterling to Euro (GBP/EUR) exchange rate.

Even so, remarks from European Central Bank (ECB) chief economist Peter Praet helped to limit the downside potential of Euro (EUR) exchange rates on Wednesday.

Suggestions that the ECB could return to a monetary tightening bias sooner rather than later gave the single currency a solid boost against its rivals.

Signs of weakness within the German economy soon returned EUR exchange rates to a softer footing, however.

With the Eurozone’s powerhouse economy struggling to rebound from its weak first quarter the appeal of the Euro continued to diminish.

GBP/EUR Exchange Rate Forecast Lower Ahead of ECB Policy Announcement

The Pound Sterling to Euro (GBP/EUR) exchange rate could come under renewed pressure as anticipation builds for the ECB’s latest policy announcement.

Any indications that the central bank is taking a more hawkish view on monetary policy should encourage the single currency to push higher across the board.

Nevertheless, a dovish performance from ECB President Mario Draghi at Thursday’s press conference may weigh heavily on EUR exchange rates.

If the ECB does signal an intent to continue winding down its quantitative easing programme imminently, though, the GBP/EUR exchange rate is likely to slump sharply.

The Euro looks vulnerable to a deterioration in the German ZEW economic sentiment survey, meanwhile, as confidence in the outlook of the Eurozone’s powerhouse economy diminishes.

Pound Sterling Euro (GBP/EUR) Exchange Rate Could Benefit From Higher Inflation

May’s UK consumer price index data may help to push the Pound Sterling to Euro (GBP/EUR) exchange rate higher, on the other hand.

A fresh uptick in inflationary pressure would increase the pressure on the BoE to raise interest rates in August, to the benefit of GBP exchange rates.

Solid UK wage growth and retail sales figures could also offer support to the Pound, painting a more encouraging picture of the domestic outlook.

Any downside disappointments, though, may discourage investors and bets on the prospect of an August rate hike.

A lack of progress over Brexit negotiations could equally limit the potential of the Pound Sterling to Euro (GBP/EUR) exchange rate in the coming days.

Hannah Wilson

Contact Hannah Wilson