Rising UK Wages Fail to Boost Pound Sterling Euro (GBP/EUR) Exchange Rate
UPDATE: The Pound Sterling to Euro (GBP/EUR) exchange rate came under fresh pressure on Tuesday even as UK average weekly earnings figures bettered forecast.
Even though earnings accelerated by a decent 2.9% in the three months to July, outpacing inflation once again, this was not enough to shore up Pound Sterling (GBP).
The Euro (EUR) found some support, meanwhile, on the back of an improvement in the German ZEW economic sentiment survey for September.
Barnier Comments Encourage Sharp Gains for GBP/EUR Exchange Rate
UPDATE: Comments from chief EU negotiator Michel Barnier have prompted the Pound Sterling to Euro (GBP/EUR) exchange rate to rally sharply on Monday afternoon.
Investors piled back into Pound Sterling (GBP) after Barnier noted that a Brexit deal is realistically achievable within the next six to eight weeks.
As fears of a no-deal Brexit were muted in response to the words this saw GBP exchange rates pushing higher across the board.
Pound Sterling Euro (GBP/EUR) Exchange Rate Struggles to Capitalise on Stronger UK Growth
A stronger-than-expected UK monthly gross domestic product reading was not enough to keep the Pound Sterling to Euro exchange rate on a positive footing at the start of the week.
As July’s three-month average GDP accelerated from 0.4% to 0.6% this encouraged renewed optimism in the outlook for the UK economy.
This improvement suggests that the economy is on track for a solid third quarter growth rate, giving investors incentive to favour Pound Sterling.
Even so, the positive impact of the data was limited by weaker production data and lingering worries surrounding Brexit.
As John Hawksworth, Chief Economist at PricewaterhouseCoopers, commented:
‘Looking ahead, however, the long hot summer could give way to a stormy autumn as Brexit-related uncertainty leads businesses to defer major investment decisions and subdued real wage growth weighs on consumer spending.’
Weakening Eurozone Investor Confidence Offers Limited Support to GBP/EUR Exchange Rate
The Pound Sterling to Euro exchange rate found additional support on the back of September’s Eurozone Sentix investor confidence index.
While the index remained in positive territory the dip from 14.7 to 12.0 was still a disappointing one, limiting the appeal of the Euro on Monday morning.
However, as the far right failed to make the significant gains that markets had feared in the Swedish election this encouraged a sense of optimism for the single currency.
Even though neither of Sweden’s main parties were able to gain a majority in the vote investors were still relieved that the far right only secured 17.6% of votes.
Although worries remain over the political outlook of the currency union and the visibly growing support for the far right this has not been enough to drag the Euro lower at this stage.
Increased BoE Caution May Weigh Down Pound Sterling Euro (GBP/EUR) Exchange Rate
Increased volatility is expected for the Pound Sterling to Euro (GBP/EUR) exchange rate as anticipation mounts for Thursday’s Bank of England (BoE) interest rate announcement.
Even though markets do not expect to see any change in monetary policy at the September meeting the potential for Pound Sterling jitters remains.
The mixed nature of recent UK data is likely to limit the hawkishness of the Monetary Policy Committee (MPC), potentially dragging the GBP/EUR exchange rate down once again.
If policymakers signal an intent to sit tight on monetary policy for longer the mood towards the Pound is likely to deteriorate, especially if the MPC takes a generally more cautious outlook.
On the other hand, any sign of greater confidence among policymakers could encourage GBP exchange rates to rally sharply.
GBP/EUR Exchange Rate Vulnerable Ahead of ECB Rate Announcement
Focus will also fall on the European Central Bank (ECB) policy announcement, leaving the Pound Sterling to Euro exchange rate exposed to additional pressure.
After the Eurozone inflation rate unexpectedly eased in August the ECB appears to be under less pressure to alter its monetary policy outlook, suggesting that interest rates will remain on hold for longer.
If ECB President Mario Draghi maintains a relatively measured view in comments to the press this could see the Euro trending lower across the board.
Any evidence that the hawks are gaining influence within the ECB, though, would give EUR exchange rates a solid boost.
Unless the odds point towards the ECB’s next interest rate hike coming later rather than sooner the Pound Sterling to Euro exchange rate looks vulnerable.