GBP/EUR Higher as Boris Johnson Says he is ‘Not Aiming for No Deal’

GBP/EUR Exchange Rate Buoyed Following Johnson’s Campaign Launch

Updated: The Pound Sterling to Euro (GBP/EUR) exchange rate trended higher on Wednesday afternoon, with the pairing reaching €1.1262 as Boris Johnson launched his leadership campaign by stating that he is ‘not aiming for a no-deal Brexit’.

As the frontrunner to replace Theresa May as PM, Johnson’s comments were welcomed by GBP investors, but as he suggested that no-deal remained a ‘vital tool of negotiation’ the upside in Sterling was capped.

Meanwhile the Euro was left adrift this afternoon as a lull in Eurozone data left investors to focus on Draghi’s earlier warning about headwinds in global trade.

Pound to Euro (GBP/EUR) Exchange Rate Stable Following Draghi Speech

The Pound Sterling to Euro (GBP/EUR) exchange rate is trading in a narrow range this morning, following comments from European Central Bank (ECB) President Mario Draghi,

At the time of writing the GBP/EUR exchange rate is trading at around €1.1241, leaving the pairing virtually unchanged from this morning’s opening rate.

However, the Pound could gain on the Euro as he week progresses following the publication of the Eurozone’s latest industrial production figures.

Euro (EUR) Muted Following Draghi Comments

The Euro (EUR) is rangebound against the Pound (GBP) and the majority of its other peers this morning following comments in a speech by Mario Draghi at the opening of the ECB conference on Central, Eastern, and South-Eastern European countries (CESEE), in Frankfurt.

Delivering his opening address the ECB President didn’t directly mention monetary policy but spoke of the problems of rising trade protectionism and its negative impact on global growth, saying:

‘Global trade has faced headwinds in recent years as trade-restrictive measures have outpaced liberalising measures.’

While the comments make it clear that the ECB is still concerned by rising global trade tensions, they offered limited insight into whether this will be enough for the bank to consider cutting interest rates as recent reports suggest and therefore had little impact on the GBP/EUR exchange rate.

Pound (GBP) Exchange Rates Steady as Investors Brace for Heightened Political Uncertainty

After ticking higher on Tuesday on the back of some stronger-than-expected wage growth figures, Pound (GBP) exchange rates consolidated their gains this morning as investors turned their focus back to UK politics.

The race to replace Theresa May is currently in full swing, with 10 Conservative candidates vying to become the next Prime Minister and leader of the Tory Party.

Boris Johnson will officially launch his campaign later today and GBP investors will be watching closely to learn more about the frontrunner’s policy plans, particularly in regards to Brexit.

Johnson is widely expected to pledge that he will lead the UK out of the EU by the end of October, regardless of whether a deal is in place, the prospect of which will likely dampen Sterling sentiment.

GBP/EUR Exchange Rate Forecast: Slump in Eurozone Factory Production to Sink the Euro?

Looking ahead, the Pound Euro (GBP/EUR) exchange rate may trend higher on Thursday following the publication of the Eurozone’s latest industrial production figures.

The release is expected to show that factory output in the bloc continued to weaken in April, with production forecast to contract 0.5% following a 0.3% decline in March.

However, there is a risk that production could come in even worse than expected after Germany last week reported a -1.9% contraction in April.

Meanwhile, outside of the rising political uncertainty in the UK, the second half of this week’s session may see the Pound also influenced by a speech from Bank of England (BoE) Governor Mark Carney.

GBP investors will be eager to see if Carney still believes that markets are ‘underestimating’ the pace at which the BoE will raise interest rates, with heightened risks from Brexit and a slowing global economy potentially leading to a more cautious tone.

If this is so, and Carney comes across as dovish, we can expect to see the Pound Euro (GBP/EUR) exchange rate constrained.

Matthew Andrews

Contact Matthew Andrews