Positive Comments from EU Negotiator Barnier Drive Pound Sterling Euro (GBP/EUR) Exchange Rate Rally
UPDATE: Brexit-based optimism helped to drive the Pound Sterling to Euro (GBP/EUR) exchange rate higher once again on Friday.
Comments from Chief EU Negotiator Michel Barnier gave investors fresh cause for confidence as he stated that ‘the no-deal scenario is not our scenario’, fuelling hopes that talks will see further positive progress.
Although the issue of the Irish border remains unresolved the more optimistic tone of Barnier’s words was enough to set Pound Sterling (GBP) on a fresh bullish run.
Pound Euro (GBP/EUR) Exchange Rate Capitalises on Deteriorating German Outlook
As confidence in the outlook of the Eurozone economy continued to deteriorate, this offered further support to the GBP/EUR exchange rate.
With the German economy appearing less robust in health there appeared little reason to favour the single currency over GBP on Thursday, especially as jitters mounted in anticipation of the latest German trade data.
Improved German Construction Data Fails to Weigh Down GBP/EUR Exchange Rate
UPDATE: The Pound Sterling to Euro (GBP/EUR) exchange rate held onto its relatively solid footing throughout trade on Thursday, continuing to benefit from the day’s disappointing Eurozone data.
Although the Germany construction PMI showed renewed growth in August this proved insufficient to give the Euro (EUR) much of a boost.
With confidence in the wider outlook of the German economy generally diminished the single currency may struggle to find any particular boost in the near term.
Pound Sterling Euro (GBP/EUR) Exchange Rate Shored up by German Factory Order Contraction
As German factory orders defied expectations and contracted further in July, the Pound Sterling to Euro (GBP/EUR) exchange rate has remained on a positive footing.
Ongoing trade tensions with the US kept the German manufacturing sector under pressure at the start of the third quarter, undermining confidence in its economic outlook.
While domestic orders saw a strong increase on the month this was not enough to offset the wider global decline in demand for German goods.
With the Eurozone’s powerhouse economy still struggling to find any fresh growth momentum the mood towards the Euro (EUR) soured on Thursday morning.
The -0.9% contraction in order volumes on the month does not bode well for Friday’s German trade data, leaving EUR exchange rates vulnerable to further weakness ahead of the weekend.
GBP Exchange Rates Fail to Hold Onto Brexit Breakthrough Optimism
Although the Pound Sterling to Euro (GBP/EUR) exchange rate saw a sharp – Brexit-driven – surge upwards on Wednesday afternoon, the pairing was unable to sustain this level of bullishness.
Reports that Germany was prepared to agree to a significant compromise with the UK prompted Pound Sterling (GBP) to leap higher, even though the breakthrough was unconfirmed.
German officials were quick to dispute the rumours, causing the GBP/EUR exchange rate to quickly reverse its initial gains.
However, markets remain hopeful that Brexit negotiations could see some progress in the coming days, limiting the negative pressure on the Pound for the time being.
GBP/EUR Exchange Rate to Benefit from Narrowed German Trade Surplus
If Germany’s July trade balance reflects this latest decline in factory orders the Pound Sterling to Euro (GBP/EUR) exchange rate is likely to receive a fresh boost.
Forecasts point towards the trade surplus narrowing from €21.8bn to €19.5bn on the month, even though export volumes are expected to show a modest uptick.
A more dramatic narrowing of the surplus would leave the Euro exposed to further downside pressure, encouraging investors to pile out of the single currency.
As long as global trade tensions continue to mount EUR exchange rates are likely to remain on the back foot, especially as the US looks primed to impose fresh trade tariffs on China.
Weaker UK Inflation Expectations to Weigh on Pound Sterling Euro (GBP/EUR) Exchange Rate
However, further pressure could be in store for the Pound Sterling to Euro (GBP/EUR) exchange rate ahead of the weekend on the back of the third quarter UK consumer inflation expectations reading.
Investors expect to see a weakening in inflation expectations from 2.9% to 2.7%, suggesting that domestic inflationary pressure is easing.
If price pressures soften in the coming months this would give the Bank of England (BoE) an incentive to leave interest rates on hold for longer, to the disappointment of the Pound.
Speculation over the possibility that BoE Governor Mark Carney will extend his term at Threadneedle Street may also drive some volatility for the Pound Sterling to Euro (GBP/EUR) exchange rate in the near term.