Pound Sterling to Euro (GBP/EUR) Exchange Rate Muted as Eurozone Industrial Production Betters Forecast

Better-Than-Expected Eurozone Industrial Products Dents GBP/EUR Exchange Rate

UPDATE: February’s Eurozone industrial production data bettered forecasts, leaving the Pound Sterling to Euro (GBP/EUR) exchange rate on a weaker footing ahead of the weekend.

Although production saw a contraction on both the month and the year this still represented an improvement on January’s data, encouraging investors to buy into the Euro (EUR).

Lingering worries over the UK’s political outlook also weighed on the GBP/EUR exchange rate this morning.

Prospect of Continued Brexit Uncertainty Weighs on GBP/EUR Exchange Rate

UPDATE: As businesses expressed concern over the prospect of another six months of Brexit-based uncertainty the mood towards Pound Sterling (GBP) remained generally muted.

With MPs still appearing to lack any clear path forward towards an agreeable Brexit deal the GBP/EUR exchange rate remained on a weaker footing.

If the odds of a fresh general election continue to mount this could see the Pound shedding further ground against its rivals.

Latest Brexit Deadline Extension Fails to Boost Pound Sterling Euro (GBP/EUR) Exchange Rate

News that Theresa May had secured a fresh delay to the Brexit deadline failed to shore up the Pound Sterling to Euro (GBP/EUR) exchange rate this morning.

Although the UK is no longer at risk of crashing out of the EU without a deal on Friday investors greeted the news with little sense of enthusiasm, leaving Pound Sterling (GBP) on a weak footing.

As Jane Foley, Senior FX Strategist at Rabobank, noted:

‘Last week European Commission President Tusk signalled his preference for a flexible delay of up to 12 months, so some investors may have been disappointed with the news that the Brexit deadline is now October 31.’

‘Another key reason for GBP’s lacklustre response is that yesterday’s delay serves only to kick the can down the road. The UK has now been saddled with a prolonged period of uncertainty which is likely to exacerbate the pressure on the economy and in particular the profitability of exporters.’

With a sense of uncertainty looking set to hang over the UK economy for the foreseeable future the initial boost to the GBP/EUR exchange rate soon faded.

German Inflation Data Limits Euro (EUR) Exchange Rate Strength

Confirmation that the German consumer price index eased to 1.3% on the year in March limited the appeal of the Euro (EUR), however.

As inflationary pressure within the Eurozone remains lacklustre EUR exchange rates struggled to find any fresh traction this morning.

Following on from yesterday’s dovish European Central Bank (ECB) policy announcement this weaker reading adds to evidence that policymakers will keep interest rates on hold for some time to come.

The latest global growth warning from the International Monetary Fund (IMF) also put pressure on the single currency, with confidence in the Eurozone’s economic outlook already limited.

Lack of Brexit Agreement Progress May Keep GBP/EUR Exchange Rate Under Pressure

Unless there are tangible signs of progress towards a Brexit deal the GBP/EUR exchange rate is likely to remain on the back foot.

With signs of elevated stockpiling already apparent within the manufacturing sector the prospect of an elongated period of uncertainty looks set to weigh down the UK economy in the coming months.

Even though February’s UK gross domestic product data appeared to shrug off much of the anxiety over Brexit this strength could prove fragile.

If Conservative MPs continue to push back against the extended deadline, meanwhile, investors may see limited incentive to buy back into Pound Sterling.

Weakening Eurozone Industrial Production to Weigh on Euro (EUR)

The Euro could weaken ahead of the weekend, meanwhile, as forecasts point towards a month of contraction in the latest Eurozone industrial production data.

If production falls -0.6% on the month as anticipated EUR exchange rates could come under increased pressure as confidence in the economic outlook deteriorates.

Without evidence of greater resilience within the Eurozone economy the Euro may struggle to capitalise on the relative weakness of the Pound.

However, evidence of a stronger month of industrial production could still see the GBP/EUR exchange rate recovering some ground tomorrow.

Louisa Heath

Contact Louisa Heath