Improved German Business Sentiment Dents Pound Sterling Euro (GBP/EUR) Exchange Rate
A better-than-expected German IFO business sentiment survey offered encouragement to the Euro (EUR) this morning, in spite of the weakness of recent Eurozone economic data.
EUR exchange rates recovered some ground as the business expectations index climbed from 93.8 to 95.6, suggesting a greater level of confidence in the economic outlook.
This encouraged hopes that the Eurozone’s powerhouse economy could return to stronger form in the coming months, even in the face of ongoing global trade anxiety.
However, the lingering disappointment of Friday’s weak German manufacturing PMI ultimately limited the impact of the sentiment data, especially as the survey pointed towards continued softness within the sector.
As a result, the Pound Sterling to Euro (GBP/EUR) exchange rate struggled to find any particular traction at the start of the week.
High Odds of No-Deal Brexit Weigh on GBP/EUR Exchange Rate
Brexit-based uncertainty continued to limit support for Pound Sterling (GBP) today as Theresa May attempted to rally support among MPs.
With the proposed Brexit deal still looking likely to face another defeat investors remain wary of the prospect of the UK leaving the EU without any deal in place.
Even with the Brexit deadline extended to 12th April the risk of a no-deal Brexit is still hanging over GBP exchange rates.
As the European Commission warned that it is ‘increasingly likely’ that a no-deal scenario could occur, leaving the UK to crash out of the EU next month, the appeal of the Pound naturally diminished.
Rising German Inflation to Offer Euro (EUR) Exchange Rate Rallying Point
The mood towards the Euro could improve later in the week if the German consumer price index shows signs of acceleration.
Any uptick in inflationary pressure would give the European Central Bank (ECB) incentive to take a less dovish view on monetary policy.
While even a solid increase in the inflation rate is unlikely to convince the ECB to raise interest rates before the end of the year a stronger showing here could still boost EUR exchange rates.
On the other hand, if inflation shows fresh signs of slowing this could put the single currency under renewed pressure.
As long as price pressures appear to ease demand for the Euro looks set to diminish.
Lack of Brexit Resolution Set to Drag on Pound Sterling (GBP)
Even if the UK government delays its planned third meaningful vote on May’s Brexit deal the Pound is likely to see additional volatility this week.
As markets continue to weigh up the odds of a disorderly exit from the EU GBP exchange rates may struggle to find any particular degree of support.
If political pressure on Theresa May continues to increase, meanwhile, this could add to the bearish outlook of the Pound.
Until markets see some sense of clarity over the UK’s future relationship with the EU the strength of the GBP/EUR exchange rate is likely to remain limited.