Pound to Euro Avoids Losses as German Data Paints Concerning Picture

Pound to Euro Exchange Rate Trends Nearer Week’s Opening Levels despite European Central Bank’s Lack of Dovishness

UPDATE: A surprisingly neutral tone from the European Central Bank (ECB) yesterday briefly left the Euro (EUR) stronger.

ECB President Mario Draghi surprised investors by being less dovish than expected on the Eurozone economy, and raising 2019’s growth and inflation forecasts.

However, this morning a shockingly poor German industrial production report from April made investors more concerned about the Eurozone economic outlook once again.

As a result, the Pound Sterling to Euro (GBP/EUR) exchange rate has avoided falling too far below the week’s opening levels.

Pound to Euro Exchange Rate Struggles to Hold Ground as Euro Inflation Outlook Rises

After days of mixed movement in reaction to economic and political uncertainties, the Pound Sterling to Euro (GBP/EUR) exchange rate fell yesterday as investors digested a surprisingly steady tone from the European Central Bank (ECB).

Since opening this week at the interbank level of 1.12, GBP/EUR has been fluctuating within a relatively narrow range and for most of the week has avoided notable losses despite the Pound’s weakness.

However, following the European Central Bank decision GBP/EUR weakened again and shed its advance attempts.

Still, the pair’s losses were limited as well, as some comments from ECB President Mario Draghi on the bank’s policy were perceived as more optimistic while others were seen as more dovish.

Pound (GBP) Exchange Rates Expected to Remain Volatile during Conservative Leadership Contest

Amid a lack of particularly supportive news for the Pound (GBP) over the last week, with economic data mixed, investors remain focused on Britain’s uncertain political outlook.

UK Prime Minister Theresa May is stepping down from her leadership over the next month and analysts predict that her successor could advocate a harder Brexit.

With the leadership contest heating up and no-deal Brexit fears returning, the Pound has been under constant pressure.

Analysts are predicting that investors are hesitant to make big moves on the Pound while the leadership contest is ongoing.

Some investors have been buying the Pound back from its lowest levels after it tumbled throughout May, and the British currency has also been able to hold against further losses versus weaker rivals like the Euro.

Euro (EUR) Exchange Rates Firm as European Central Bank (ECB) Inflation Outlook Rises

The European Central Bank (ECB) left monetary policy frozen during its June policy decision yesterday, and notably confirmed that it would not be hiking interest rates until mid-2020 at the earliest.

However, the biggest surprise for Euro (EUR) investors was the bank’s surprisingly optimistic tone on the Eurozone’s economic stability and the bloc’s inflation rate.

Rather than making any hints towards a more dovish stance any time soon, the ECB hesitated to play up economic weakness. According to analysts from TD Securities:

‘One of the more dovish outcomes we envisaged did not materialise. The [ECB] governing council extended its forward guidance timing, but also under-delivered on the TLTRO front,’

The bank raised its 2019 growth and inflation outlooks slightly, but did cut its 2020 outlooks.

ECB President Mario Draghi also asserted that the bank was ready to act if necessary, but overall signalled to markets that the economic outlook was not bad.

Pound to Euro (GBP/EUR) Exchange Rate Could be driven by German Trade Data

The Euro (EUR) is most likely to drive Pound to Euro (GBP/EUR) exchange rate movement for the remainder of the week, as investors continue to digest yesterday’s European Central Bank (ECB) policy decision as well as today’s German ecostats.

As Germany is the Eurozone’s biggest economy and the nation’s slowing trade sector has been a cause of Eurozone economic weakness, investors may be more willing to buy the Euro if the German data impresses.

German trade balance data will include import and export stats. The nation’s April industrial production report could prove influential as well.

Those are the only notable ecostats for GBP/EUR investors before the end of the week, and next week’s data includes German inflation and Eurozone industrial production.

Economic data aside, Pound to Euro (GBP/EUR) exchange rate investors will also react to any notable developments in Brexit, UK politics, or Italy-EU budget tensions before the end of the week.

Josh Jeffery

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