UK Budget Surplus Boosts Pound Sterling Euro (GBP/EUR) Exchange Rate
UPDATE: A larger-than-expected public sector net borrowing surplus for July encouraged the Pound Sterling to Euro (GBP/EUR) exchange rate to trend higher.
The monthly budget surplus of 2.8 billion was the largest July surplus since 2000, boosting confidence in the outlook of the UK economy.
Even though the latest CBI industrial trends orders survey proved a little less positive in nature this was not enough to prevent Pound Sterling (GBP) pushing higher throughout trade on Tuesday.
Pound Sterling to Euro Exchange Rate Strengthens as Case for ECB Hawkishness Dims
UPDATE: Unless the currency union can show signs of a sustained increase in inflationary pressure the European Central Bank (ECB) is likely to maintain a more dovish outlook.
If markets see further reason to push back the likely date of the ECB raising interest rates this could benefit the GBP/EUR exchange rate.
Pound Sterling Euro (GBP/EUR) Exchange Rate Benefits From Jitters Over Greece and Turkey
An uptick in June’s Eurozone construction output data failed to send the Pound Sterling to Euro (GBP/EUR) exchange rate into a fresh downtrend as markets reopened for a new week of trading.
Confidence in the Euro (EUR) remained generally limited thanks to lingering jitters over the future of the Turkish economy and nerves as Greece finally exits its long-running bailout programme.
Worries remain over the future of the Greek economy, with its gross domestic product still 25% smaller than it was prior to the financial crisis, and June’s current account balance having disappointed.
As a result, investor wariness over the prospect of a fresh Greek crisis or another escalation in the Turkish situation kept EUR exchange rates on the back foot.
GBP Falters as UK House Prices Deteriorate
The Pound Sterling to Euro (GBP/EUR) exchange rate came under some pressure, however, as the UK Rightmove house price index showed a sharp slump on the month in August.
A -2.3% drop in prices suggests that the UK housing market is continuing to slow, boding ill for the outlook of the wider domestic economy.
The weak nature of wage growth and rising inflationary pressures is leaving buyers cautious and encouraging sellers to reduce prices.
As a high degree of Brexit-based uncertainty continues to hang over Pound Sterling (GBP), with the odds of the UK leaving the EU without a deal still looking rather high, the upside potential of the GBP/EUR exchange rate remains limited.
Lower UK Government Borrowing May Boost Pound Sterling Euro (GBP/EUR) Exchange Rate
July’s UK public sector net borrowing figure could offer the Pound Sterling to Euro (GBP/EUR) exchange rate a more substantial rallying point.
Forecasts point towards a decline of -2.2 billion in borrowing on the month, suggesting a narrowing of the fiscal deficit which may encourage greater confidence in the domestic outlook.
However, focus will also fall on the latest CBI industrial trends and reported sales surveys.
Unless data offers evidence of a more resilient economy, GBP exchange rates look vulnerable to further pressure.
If the industrial sector shows fresh signs of growth this may offer investors reassurance even in the face of persistent fears of a no-deal Brexit.
Hawkish ECB Minutes Could Weigh Heavily on GBP/EUR Exchange Rate
The release of the European Central Bank’s (ECB) July meeting minutes may see the Pound Sterling to Euro (GBP/EUR) exchange rate trending lower once again later in the week.
Any signs of increased hawkishness among policymakers could see the Euro pushing higher across the board, with investors still speculating over the likely timing of further monetary policy tightening.
While markets do not expect the ECB to begin raising interest rates until well into 2019, evidence of greater optimism within the central bank would give EUR exchange rates some fresh support.
However, if August’s raft of Eurozone manufacturing and services PMIs fail to show an acceleration in sector growth the mood towards the single currency could sour.
Developments surrounding Turkey are also likely to remain a drag on sentiment until the crisis dies away, potentially limiting the downside pressure on the Pound Sterling to Euro (GBP/EUR) exchange rate.