Pound to Euro Exchange Rate Climbs as Eurozone Inflation Concerns Investors
While the Pound Sterling to Euro (GBP/EUR) exchange rate still trended below the week’s opening levels on Tuesday evening, the pair had rebounded slightly from the multi-month lows seen in the morning as the Euro (EUR) was sold on poor Eurozone data.
Following a relatively modest fall for GBP/EUR last week, the pair opened this week near the level of 1.12 and the interbank level has fluctuated relatively closely to those levels since.
Yesterday morning, GBP/EUR touched on its worst levels since mid-January before rebounding slightly towards the end of the day.
Sterling (GBP) remained unappealing on UK political uncertainties and weak data, limiting the pair’s potential for recovery.
Rather than there being any notable news supporting the Pound, the Pound to Euro exchange rate’s recovery has been more due to the concerning Eurozone inflation data published yesterday.
Pound (GBP) Exchange Rates Lack the Drive to Sustain Stronger Recovery
There has been little fresh or notable demand for the Pound (GBP) this week thus far, leaving the British currency to be driven by lingering sentiment regarding UK political uncertainty and disappointing UK data.
Sterling remains broadly unappealing as investors bet that a hard Brexit supporter will succeed Prime Minister Theresa May, and that a worst-case scenario no-deal Brexit has become more likely as a result.
As no-deal Brexit bets worsen and fears dominate the economic outlook, investors are highly hesitant to buy the Pound.
The British currency only became even less appealing following the publication of manufacturing and construction PMI stats since Monday.
Both figures printed unexpected contractions, making investors anxious about the health of Britain’s economic performance amid Brexit and global trade uncertainties.
Euro (EUR) Exchange Rates Weaken on Signs of Eurozone Inflation Weakness
Ahead of Thursday’s anticipated European Central Bank (ECB) monetary policy decision, the Eurozone economy saw some fresh signs of concern as the latest inflation data for the bloc fell short of expectations.
The Eurozone’s Consumer Price Index (CPI) inflation rate projections for May fell slightly short of expectations in both core and overall prints, coming in at 0.8% and 1.2% respectively.
Analysts noted that due to the Easter bump in April, these latest stats were likely painting a more accurate picture of Eurozone inflation than the previous figures.
This disappointed investors and made economists doubtful that that the European Central Bank (ECB) would remain as optimistic on inflation as they had been. According to Chris Scicluna from Daiwa Capital Markets:
‘Underlying inflation continues to disappoint and we think the ECB will downgrade its forecasts in terms of inflation on Thursday,’
While yesterday’s Eurozone unemployment rate beat expectations, this was not enough to bolster Euro demand either as ECB uncertainties rose.
Pound to Euro (GBP/EUR) Exchange Rate Investors Focus on Services PMIs and Eurozone Retail Today
Following highly disappointing UK manufacturing and construction data earlier in the week, Pound (GBP) investors will be hoping that Britain’s services sector can offer the economy a little relief.
If the services PMI falls into contractions as well however, investors may become especially anxious about how Britain’s economy is coping amid the Brexit process.
With UK politics and Brexit still the focus for Pound investors, Eurozone services and retail sales data may be more likely to influence Pound to Euro (GBP/EUR) exchange rate movement tomorrow.
As the European Central Bank (ECB) policy decision is set for Thursday, Euro (EUR) movement may be especially sensitive to any surprises in Eurozone services or retail sales.
If these upcoming Eurozone stats, or Thursday’s growth stats, beat expectations, investors may become more hopeful for a more optimistic tone from the ECB again.
Of course, while upcoming Eurozone data has the potential to be highly influential, the Pound to Euro (GBP/EUR) exchange rate will remain especially sensitive to Brexit and ECB news.