Pound Sterling to Euro (GBP/EUR) Exchange Rate Shakes off Surprise Surge in German Inflation

Surge in German Inflation Fails to Dent GBP/EUR Exchange Rate Uptrend

UPDATE: A better-than-expected uptick in the German consumer price index failed to prevent the Pound Sterling to Euro (GBP/EUR) exchange rate from gaining fresh ground today.

Although the headline inflation rate strengthened from 1.3% to 2.0%, matching the European Central Bank’s (ECB) target rate, the positive impact on the Euro (EUR) proved limited.

With the ECB still looking set to leave monetary policy on hold for the foreseeable future, regardless of the latest stronger signals from the Eurozone economy, EUR exchange rates struggled to capitalise on the data.

GBP/EUR Exchange Rate Trends Lower on Downgraded UK Growth Forecasts

UPDATE: The mood towards Pound Sterling (GBP) generally diminished in the wake of the EY Item Club’s decision to downgrade its UK growth forecasts for 2019 and 2020.

With the forecaster suggesting that Brexit will remain a major drag on economic growth for the remainder of the year, in spite of the extended exit deadline, GBP exchange rates remained on the back foot.

As EY Item Club sees the Bank of England (BoE) leaving interest rates on hold for some months to come the Pound struggled to find any traction against its rivals.

Although the Spanish general election failed to deliver a parliamentary majority this was not enough to prevent the Euro (EUR) making some modest gains against its rival today.

Pound Sterling Euro (GBP/EUR) Exchange Rate Benefits as Eurozone Confidence Slides

Eurozone economic confidence failed to improve in April, easing from 105.6 to 104.0 and limiting the downside bias of the Pound Sterling to Euro (GBP/EUR) exchange rate.

As consumer confidence also remained under pressure this month there appeared little reason for investors to favour the Euro (EUR) over its rivals.

With signs still pointing towards the Eurozone economy coming under greater pressure in the months ahead EUR exchange rates were left on the back foot this morning.

As an extended period of weaker growth would further damage the prospect of any European Central Bank (ECB) monetary tightening the single currency naturally softened.

Stalling Brexit Discussions Weigh on GBP/EUR Exchange Rate

The mood towards Pound Sterling (GBP) soured, however, thanks to reports that no fresh talks between the Labour and Conservative leaderships are scheduled in the near term.

This suggests that progress towards a possible Brexit compromise has stalled, leaving GBP exchange rates exposed to fresh selling pressure.

With the issue of the Irish backstop continuing to complicate matters the Brexit issue looks set to hang over the economic outlook for some time yet to come.

Even with the Brexit deadline extended until the end of October a persistent lack of progress towards a resolution of the issue could keep GBP exchange rates under pressure for the foreseeable future.

EUR Exchange Rates Set for Rally on German Unemployment and Inflation Data

A raft of Eurozone data could see the single currency return to a stronger footing tomorrow, with the German unemployment rate forecast to hold steady on the month.

Markets also anticipate a modest uptick in the headline German consumer price index, showing that inflation picked back up to 1.5% on the year in April.

Evidence of stronger inflationary pressure within the Eurozone’s powerhouse economy would give investors incentive to pile back into the Euro, even in the wake of underwhelming sentiment data.

However, any signs of a slowdown in the first quarter Eurozone gross domestic product could still weigh heavily on EUR exchange rates.

Unless the Eurozone economy demonstrates resilience in the first three months of 2019 the GBP/EUR exchange rate may find a fresh rallying point.

Pound Sterling (GBP) Struggles for Support Ahead of BoE Meeting

As anticipation mounts for the Bank of England’s (BoE) latest policy meeting the Pound could struggle to make any significant gains against its rivals.

Even so, a positive showing from Wednesday’s UK manufacturing PMI may offer a boost to GBP exchange rates if the sector shows evidence of fresh growth.

If the PMI eases from 55.1 to 53.1 as forecast, though, the appeal of Pound Sterling is unlikely to improve, even though such a result still demonstrates solid growth within the sector.

With Brexit looking set to weigh on economic momentum for some time to come any indication that the economy is already losing its steam may see the GBP/EUR exchange rate return to a downtrend.

Louisa Heath

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