Rising Odds of No-Deal Brexit Extend GBP/EUR Exchange Rate Losses
UPDATE: Ongoing speculation over Brexit saw the Pound Sterling to Euro (GBP/EUR) exchange rate continue to weaken over the course of the day.
With support for Labour’s amendment to the withdrawal agreement appearing to diminish the mood towards the Pound soured further.
As the odds of a no-deal Brexit picked up once again the GBP/EUR exchange rate was left to extend its losses.
Increased Eurozone Money Supply Dents Pound Sterling Euro (GBP/EUR) Exchange Rate
The Pound Sterling to Euro (GBP/EUR) exchange rate returned to a downtrend at the start of the week as December’s Eurozone M3 money supply beat forecasts.
Investors were encouraged to find that the headline money supply figure had strengthened 4.1% on the year in December, improving the appeal of the Euro (EUR).
This solid increase in money supply suggests that inflationary pressure within the currency union is still building, in spite of disappointing consumer price index data.
Even so, this uptick is unlikely to cause any shift in the policy outlook of the European Central Bank (ECB), which still looks set to leave interest rates on hold for the foreseeable future.
Brexit Debate Threatens to Drag GBP/EUR Exchange Rate Lower
Confidence in Pound Sterling (GBP), meanwhile, faltered as recent market optimism over Brexit faded ahead of Tuesday’s parliamentary debate.
Although markets remain optimistic that a no-deal scenario will be avoided, it is unclear whether any of the amendments to Theresa May’s proposed withdrawal agreement would succeed.
Until the parliamentary deadlock over Brexit is broken the GBP/EUR exchange rate could struggle to regain its bullish momentum, especially as the March deadline approaches.
Continued uncertainty over the UK’s future relationship with the EU gives investors little incentive to favour the Pound over its rivals in the absence of any encouraging domestic data.
Commentary from Bank of England (BoE) Governor Mark Carney could also put additional pressure on GBP exchange rates this afternoon.
Easing German Inflation Forecast to Weigh Down Euro (EUR) Exchange Rates
The mood towards the Euro could sour once again, however, if Wednesday’s German consumer price index data eases.
Forecasts point towards a sharp contraction in price pressures on the month, with inflation expected to slump to -0.8% for January.
While the headline inflation rate is only expected to ease from 1.7% to 1.6% on the year this would still leave the Euro exposed to fresh selling pressure.
Continued signs of a slowdown within the Eurozone’s powerhouse economy could weigh heavily on the single currency, particularly in the face of recent ECB cautiousness.
Underwhelming fourth quarter Eurozone gross domestic product figures may add to a sense of Euro bearishness this week.
GBP/EUR Exchange Rate Vulnerable Ahead of UK Consumer Credit Data
Even though Brexit developments are likely to dominate the outlook of the GBP/EUR exchange rate the latest UK net consumer credit reading may offer some support.
An increase in consumer credit could encourage greater confidence in the outlook of the UK economy, signalling improved domestic sentiment.
However, higher levels of consumer borrowing may also give the BoE cause for concern, as rising debt reduces households’ resilience to economic shocks.
Any decline, though, could still dent the GBP/EUR exchange rate as worries over the economic outlook continue to weigh on the minds of investors.