Pound Sterling to Euro (GBP/EUR) Exchange Rate Recovers Ground as German Sentiment Slides

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

UPDATE: Investors were disappointed to find that the German ZEW economic sentiment survey had slumped further in July, boosting the Pound Sterling to Euro (GBP/EUR) exchange rate.

As the headline index weakened from -16.1 to -24.7 this undermined confidence in the outlook of the Eurozone’s powerhouse economy, suggesting that growth will continue to struggle.

Demand for Pound Sterling (GBP), meanwhile, picked up on the back of the first monthly UK gross domestic product reading, which showed steady growth of 0.3% in May.

Boris Johnson Resigns as Foreign Secretary as Pound to Euro (GBP/EUR) Reverses Earlier Gains

As foreign secretary Boris Johnson resigned on Monday afternoon the Pound Sterling to Euro (GBP/EUR) exchange rate promptly slumped.

Johnson’s departure stoked market fears of a potential leadership challenge against Theresa May, something which could endanger the prospect of a softer Brexit. Currently the Pound is trading at a rate of €1.129 at the interbank rate.

Pound Sterling Euro (GBP/EUR) Exchange Rate Benefits From Fewer Political Jitters over Brexit

The rapid appointment of a new Brexit secretary encouraged the Pound Sterling to Euro (GBP/EUR) exchange rate to hold onto its strength today, limiting any sense of political damage.

Investors remain hopeful that the departure of David Davis, and the absence of any leadership challenge against Theresa May, will pave the way for a softer form of Brexit.

This has gone some way to easing business concerns over the outlook of the UK economy, even though there is still much progress to be made before a final deal is put in place.

Pound Sterling Euro (GBP/EUR) Exchange Rate Pushes Higher on Hopes of Softer Brexit

Hopes that the UK is on course for a softer way of leaving the EU have encouraged the Pound Sterling to Euro (GBP/EUR) exchange rate to recover ground.

Demand for Pound Sterling (GBP) faltered on the back of Brexit secretary David Davis’s shock resignation on Monday morning.

However, GBP exchange rates were quick to shrug off the departure, instead focusing on signs that Friday’s crunch Cabinet meeting yielded some positive progress.

While the threat of further political disruption remains after Davis’s departure this was not enough to keep the Pound under pressure for long.

Nevertheless, any signs that Theresa May’s leadership is under threat could drag GBP exchange rates lower once again.

Rebound in German Exports Failed to Soften GBP/EUR Exchange Rate

May’s German trade data was not enough to dent the Pound Sterling to Euro (GBP/EUR) exchange rate, meanwhile.

Although export volumes rebounded sharply on the month, reversing April’s -0.3% contraction with a surge of 1.8%, the Euro (EUR) struggled to gain much traction.

This stronger showing still improved confidence in the underlying health of the Eurozone’s powerhouse economy, suggesting that domestic growth could see a recovery heading into the third quarter.

With markets bracing for the latest comments from European Central Bank (ECB) President Mario Draghi, the upside potential of EUR exchange rates was rather limited at the start of the week.

Pound Sterling Euro (GBP/EUR) Exchange Rate Volatility Forecast on First Monthly UK GDP Reading

While Brexit developments are set to remain the key influence on the Pound Sterling to Euro (GBP/EUR) exchange rate in the days ahead, some jitters are also expected in response to the latest UK growth data.

The release of the first monthly UK gross domestic product (GDP) reading is likely to provoke some volatility for GBP exchange rates.

If growth shows signs of picking up this could drive the Pound sharply higher against its rivals, improving the odds of the Bank of England (BoE) raising interest rates in August.

On the other hand, a disappointing showing would give investors incentive to pile back out of the Pound thanks to lingering uncertainty over the domestic outlook.

A narrowing of the visible trade deficit and a rebound in production figures may offer support to the GBP/EUR exchange rate, though.

Weaker Eurozone Economic Sentiment to Benefit GBP/EUR Exchange Rate

July’s ZEW economic sentiment surveys may put additional pressure on the Pound Sterling to Euro (GBP/EUR) exchange rate if the data shows signs of improvement.

Forecasts point towards a further deterioration in economic expectations, however, which could weigh heavily on the appeal of the Euro.

Commentary from ECB policymakers may bolster demand for the single currency this week, providing the tone sounds more hawkish in nature.

As long as the central bank looks on course to move towards tighter monetary policy in the months ahead the Pound Sterling to Euro (GBP/EUR) exchange rate is likely to struggle to find additional upside support.

Hannah Wilson

Contact Hannah Wilson


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