Update: Weaker House Prices Limit Pound Sterling Euro (GBP/EUR) Exchange Rate Upside
A modest contraction in the Rightmove house price index on the month helped to limit the strength of the Pound Sterling to Euro (GBP/EUR) exchange rate.
The weaker showing suggests that the UK housing market remains in a relatively soft state, with consumers proving less inclined to commit to a large purchase.
This does not encourage particular confidence in the domestic outlook, leaving Pound Sterling (GBP) lacking in significant support at the start of the week.
(Updated 13:10 16/07/2018)
Pound Sterling Euro (GBP/EUR) Exchange Rate Strengthens on Below-Forecast Eurozone Trade Surplus
As the Eurozone trade surplus failed to widen as forecast in May this helped to boost the Pound Sterling to Euro (GBP/EUR) exchange rate.
Investors were disappointed to find that the trade surplus had narrowed slightly from 16.7 billion to 16.5 billion, highlighting the weakening trade outlook.
With global trade conditions looking set to deteriorate further over the coming months, with tensions between the US and China continuing to escalate, the Euro (EUR) may remain under pressure.
Demand for the single currency was also dented by comments from Donald Trump, who labelled the EU a ‘foe’ with regards to international trade.
If the Trump administration continues to take a more hostile approach to the EU over trade then EUR exchange rates could slide.
Brexit Uncertainty Looms Over GBP/EUR Exchange Rate Outlook
While a significant degree of uncertainty remains over Brexit, the mood of the Pound Sterling to Euro (GBP/EUR) exchange rate still improved at the start of the week.
As a leadership challenge against Theresa May is still yet to materialise, Pound Sterling (GBP) has benefitted from an easing in political jitters.
Even so, May’s position still appears more fragile than investors would like, particularly with the Brexit Trade and Customs Bills set for fresh votes in the Commons.
Renewed signs of rebellion could weigh heavily on GBP exchange rates, especially if Conservatives push back against the softer Brexit set out in the government’s recent white paper.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Gains Forecast on Rising UK Inflation
The Pound Sterling to Euro (GBP/EUR) exchange rate could find a strong rallying point on the back of Wednesday’s UK consumer price index data.
Forecasts point towards another solid uptick in inflationary pressure on the year, with the headline index expected to accelerate from 2.4% to 2.6%.
This would give the Bank of England (BoE) further incentive to raise interest rates at its August policy meeting, with inflation still running above the Bank’s 2% target.
However, any easing in inflationary pressure is likely to weigh heavily on the GBP/EUR exchange rate, as this could encourage BoE policymakers to take a dovish approach.
Disappointing weekly earnings data could also drag the Pound down against its rivals this week.
Trade Fears to Keep Euro (EUR) Exchange Rates Under Pressure
While Sterling faces potential headwinds, worries over trade could continue boosting the Pound Sterling to Euro (GBP/EUR) exchange rate.
The risk of the US imposing further tariffs on EU products may keep the Euro on a weaker footing over the days ahead, given that export volumes have already shown signs of diminishing.
Any revisions to the finalised Eurozone consumer price index data could also provoke some volatility for EUR exchange rates.
If inflation shows fresh signs of easing this is likely to give the European Central Bank (ECB) greater cause for caution, pushing back the date of a potential interest rate hike.
A steady reading, on the other hand, may leave the Pound Sterling to Euro (GBP/EUR) exchange rate vulnerable to downside pressure.