Pound Struggles to Recover against Euro despite Mixed Eurozone Data

Pound to Euro Exchange Rate Struggles to Hold Recovery from Near Worst Levels

Update: The Pound Sterling to Euro (GBP/EUR) exchange rate remains just about half a cent above its worst levels since January, as the Pound (GBP) remains too unappealing to capitalise on the Euro’s (EUR) own weakness.

This morning’s Eurozone data has had little impact on GBP/EUR so far. Q1 labour costs only edged higher to 2.4%, but Q1 wage growth saw a solid jump from 2.3% to 2.5%.

Pound to Euro (GBP/EUR) Exchange Rate Fluctuates Amid UK Leadership Uncertainty

While the Pound Sterling to Euro (GBP/EUR) exchange rate moved away from its recent lows this morning, the pair’s gains have been limited as uncertainty persists over how Brexit will unfold under the UK’s next Prime Minister.

Last week the GBP/EUR exchange rate fluctuated around the €1.12 level, but before markets closed on Friday GBP/EUR briefly touched a fresh post-January low of €1.1182.

The pairing has since returned to €1.1218.

Pound (GBP) Exchange Rates Under Pressure as Hard Brexit Advocate Becomes more Popular

At the moment the Conservative Party leadership contest is driving Pound Sterling (GBP) exchange rate movement as the process of selecting UK Prime Minister Theresa May’s successor continues.

As markets have been betting, ex-London Mayor Boris Johnson is the clear frontrunner of the contest, claiming the most votes in the first round.

This has had a mixed impact on the Pound (GBP) – the prospect of having political clarity sooner rather than later has supported Sterling slightly, but Johnson’s support for a harder Brexit and his insistence that Britain will leave the EU with or without a deal has elevated ‘no-deal’ Brexit fears.

A deal with the EU is still generally seen as more likely, but the prospect of no-deal Brexit could undermine Pound Sterling (GBP) exchange rates for the foreseeable future.

Economic and Political Factors Keep Euro (EUR) Exchange Rates Unappealing

The Euro (EUR), meanwhile, has been unable to benefit much from the Pound’s (GBP) recent weakness, as various factors continue to limit the shared currency’s appeal.

Recent Eurozone data indicated that the Eurozone economy may not be performing as resiliently as hoped, keeping analysts concerned that the European Central Bank (ECB) could take a more dovish stance on monetary policy.

Eurozone political news continues to put pressure on Euro (EUR) exchange rates as well, as tensions between Italy and the EU over Italy’s budget plans persist.

On top of this, demand for the Euro’s most-traded rival (the US Dollar, USD) increased after Friday’s US sales data. The Euro (EUR) accordingly came under pressure due to the negative correlation between the two currencies.

Pound to Euro (GBP/EUR) Exchange Rate Traders Anticipate Key Eurozone Data

The Conservative Party leadership contest is set to continue into July, and there is unlikely to be much in the way of major Brexit news until it is over – meaning Pound Sterling (GBP) exchange rate movement could prove limited.

This means that the Euro (EUR) is most likely to be the cause of Pound to Euro (GBP/EUR) exchange rate shifts over the coming sessions, with several major Eurozone ecostats due for publication.

Particularly influential will be tomorrow’s final Eurozone Consumer Price Index (CPI) figure for May.

If Eurozone inflation falls short of expectations, European Central Bank (ECB) monetary policy expectations could become even more dovish and the Euro could weaken. Stronger inflation would have the opposite effect and the Euro would likely climb.

With ECB monetary policy speculation a key driver of Euro movement recently, this and a speech by ECB President Mario Draghi have the potential to be the biggest cause of GBP/EUR movement this week.

Pound to Euro (GBP/EUR) exchange rate traders will also be keeping an eye out for tomorrow’s Eurozone’s economic sentiment stats, Thursday’s Bank of England news, and Friday’s Eurozone PMI projections for June.

Josh Jeffery

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