Pound Sterling to Euro (GBP/EUR) Exchange Rate Recovery Eases in Spite of Persistent Turkish Worries
Unless markets see signs of greater action from the Central Bank of the Republic of Turkey (CBRT) or President Erdogan the Turkish crisis is likely to remain a drag on confidence in the wider European outlook.
As anticipation mounts for Tuesday’s raft of Eurozone data, however, the negative impact on EUR exchange rates looks set to ease further in the near term.
Market Jitters Over Turkey Fail to Keep Pound Sterling Euro (GBP/EUR) Exchange Rate on Stronger Footing
UPDATE: Persistent market worries over the future of the Turkish economy were not enough to keep the Pound Sterling to Euro (GBP/EUR) exchange rate pushing higher on Monday afternoon.
While Turkish President Recep Tayyip Erdogan maintained a generally defiant tone in his latest comments on the Turkish financial crisis the negative impact on the Euro (EUR) proved limited.
Fears over the potential spill over effect of a meltdown in the Turkish banking sector eased slightly over the course of the day, even though the risk of an escalation in the crisis remains.
GBP/EUR Exchange Rate Moves Away from 11-Month Low
The escalating Turkish financial crisis has helped to boost the Pound Sterling to Euro (GBP/EUR) exchange rate at the start of the week.
Fears of contagion hitting the European banking sector kept the Euro (EUR) under pressure on Monday, with the risk of Turkish defaults on foreign-currency loans mounting.
As the Central Bank of the Republic of Turkey (CBRT) failed to raise interest rates in response to the sharp decline of the Turkish Lira (TRY), opting to boost liquidity instead, investors saw little cause for confidence.
Until the Turkish crisis eases EUR exchange rates look set to remain biased to the downside, with confidence in the European banking sector already strained.
GBP/EUR Exchange Rate Vulnerable to Stronger German Growth
The Pound Sterling to Euro (GBP/EUR) exchange rate could come under renewed pressure on Tuesday, however, with the release of the second quarter German gross domestic product data.
Evidence that the Eurozone’s powerhouse economy is recovering its momentum could offer the single currency a boost in spite of wider market worries.
Forecasts point towards a modest improvement in the quarterly growth rate, which is expected to pick up from 0.3% to 0.4%.
Even so, the appeal of the Euro may remain limited if the finalised German consumer price index for July confirms a dip in inflationary pressure.
With the European Central Bank (ECB) looking set to maintain a more cautious outlook on monetary policy in the months ahead, evidence of a decline in inflation may weigh heavily on EUR exchange rates.
Stronger UK Inflation Forecast to Boost Pound Sterling Euro (GBP/EUR) Exchange Rate
Further volatility is forecast for the Pound Sterling to Euro (GBP/EUR) exchange rate on the back of Wednesday’s UK consumer price index.
Investors expect to see the headline inflation rate edge up from 2.4% to 2.5% in July, confirming that domestic price pressures are still mounting.
Although even a stronger uptick in inflation is unlikely to prompt any major shift in the policy outlook of the Bank of England (BoE) this could still give Pound Sterling (GBP) a fresh rallying point.
If inflationary pressure continues to mount over the coming months this could encourage the BoE to raise interest rates again in spite of the underwhelming nature of recent economic growth.
A decline in the consumer price index, on the other hand, may set the GBP/EUR exchange rate on a fresh downtrend.
Brexit Worries Continue to Limit GBP/EUR Exchange Rate Upside
While Brexit-based jitters have taken something of a back seat in recent days the Pound Sterling to Euro (GBP/EUR) exchange rate remains vulnerable to political worries.
In the absence of the UK and EU progressing towards an agreement the Pound may struggle to make significant headway against its rivals.
As long as the threat of a no deal Brexit continues to hang over the domestic outlook the upside potential of GBP exchange rates looks limited.
However, if July’s UK retail sales data demonstrates a resilient sense of consumer confidence the Pound Sterling to Euro (GBP/EUR) exchange rate could push higher.