Rising Odds of Hard Brexit Weigh Heavily on Pound Sterling (GBP)
UPDATE: Ongoing market worries surrounding Brexit saw the Pound Sterling to Euro (GBP/EUR) exchange rate trending lower for a twelfth consecutive day this morning.
As MPs continued to signal a willingness to vote down Theresa May’s withdrawal agreement once again investors were left with little cause for confidence in the political outlook.
With the odds favouring prominent Brexiteers as the most likely to succeed May as Prime Minister fears of the UK crashing out of the EU without a deal picked up.
Worries Over Brexit Drag Down GBP/EUR Exchange Rate
UPDATE: The Pound Sterling to Euro (GBP/EUR) exchange rate continued to lose traction over the course of the afternoon thanks to the general sense of investor anxiety.
With Theresa May’s withdrawal agreement bill facing almost certain defeat when it comes back before MPs at the beginning of June markets see little incentive to favour Pound Sterling (GBP) over its rivals.
Until there are signs of potential progress towards a resolution of the Brexit issue GBP exchange rates look set to remain biased to the downside.
Pound Sterling Euro (GBP/EUR) Exchange Rate Remains Soft as UK Political Anxiety Mounts
A pervasive sense of political anxiety kept the Pound Sterling to Euro (GBP/EUR) exchange rate on a weak footing today as markets brace for the results of the upcoming European Parliament elections.
After cross-party Brexit talks between Labour and the Conservatives collapsed ahead of the weekend the mood towards Pound Sterling (GBP) has generally soured.
With the Conservatives now gearing up for another leadership contest, in anticipation of Theresa May’s expected resignation, investors see little cause for confidence in the UK outlook at this stage.
As the issue of Brexit still looks set to hang over the economy for some months to come GBP exchange rates remain largely biased to the downside.
Rising German Producer Prices Fail to Buoy EUR Exchange Rates
The mood towards the Euro (EUR) failed to improve on the back of April’s German producer price index data, even as both figures bettered forecasts.
Although price pressures reversed the previous month’s contraction this was not enough to encourage hopes of a stronger inflationary outlook for the Eurozone’s powerhouse economy.
Ongoing global trade anxiety also limited the appeal of the single currency today, with the US blacklisting of Chinese telecoms giant Huawei weighing heavily on market sentiment.
As global trade looks at fresh risk of deterioration EUR exchange rates were left to trend lower across the board, also softening in response to the stronger US Dollar (USD).
Pound Sterling Volatility Forecast on UK Inflation Data
Further volatility for the GBP/EUR exchange rate looks likely on Wednesday, however, with the release of the latest UK consumer price index report.
Forecasts point towards the headline inflation rate accelerating from 1.8% to 2.2% on the year, exceeding the Bank of England’s (BoE) 2% target once again.
Even so, an uptick here is unlikely to be enough to prompt BoE policymakers into action in the near term, given the ongoing uncertainty over Brexit.
As a result, a higher inflation rate could drag the Pound lower across the board as markets weigh up the odds of the BoE’s hands remaining potentially tied for months to come.
On the other hand, any dip in inflation may also put pressure on the GBP/EUR exchange rate as worries over the health of the domestic economy persist.
Dovish ECB Commentary Set to Dent Euro Demand
Commentary from European Central Bank (ECB) President Mario Draghi could put a fresh dampener on the Euro, meanwhile.
If Draghi maintains a cautious stance on monetary policy and the outlook of the Eurozone economy this could encourage another bout of single currency selling.
With the ECB looks set to leave monetary policy on hold for the remainder of the year any fresh signs of dovishness could still weigh heavily on EUR exchange rates.
Thursday’s raft of Eurozone manufacturing and services PMIs may also put pressure on the Euro, with investors wary of any continued signs of economic weakness.
Another month of contraction within the manufacturing sector could offer the GBP/EUR exchange rate a solid rallying point in the short term.