GBP/EUR Continues to Edge Higher Despite Slowing UK Inflation

Pound to Euro Exchange Rate Climbing as ECB Interest Rate Cut Bets Rise

Update: European Central Bank (ECB) President Mario Draghi’s dovish shift in tone during his speech yesterday continued to keep pressure on the Euro (EUR) today.

Some investors speculated that the ECB could loosen Eurozone monetary policy as soon as next month.

While a more dovish ECB was largely anticipated by analysts, his comments still spooked investors.

This helped the Pound to Euro (GBP/EUR) exchange rate to edge higher today, despite slowing UK inflation and higher than expected Eurozone construction data.

Pound to Euro Exchange Rate Tests Daily Highs as European Central Bank (ECB) Rate Cut Bets Rise

Update: Despite market fears that a no-deal Brexit would become more likely under Prime Minister Theresa May’s successor, the Pound Sterling to Euro (GBP/EUR) exchange rate recovered a little more strongly towards the end of Tuesday’s European session.

The Pound (GBP) benefitted largely from weakness in the Euro (EUR), which has been sold since European Central Bank (ECB) President Mario Draghi took a more dovish stance on Eurozone monetary policy this morning.

The Euro fell against most major rivals as ECB interest rate cut bets rose, but its gains against Sterling were limited.

Pound to Euro Exchange Rate Struggles to Recover amid Persisting No-Deal Brexit Fears

Update: Demand for the Pound (GBP) was not strong enough to help the Pound to Euro (GBP/EUR) exchange rate see more than a modest recovery this morning.

Despite fresh comments from European Central Bank (ECB) President Mario Draghi and weaker Eurozone inflation data leading to ECB interest rate cut bets, the Euro’s (EUR) against a weak Pound were limited.

Persistent concerns that Britain could be headed for a no-deal Brexit under a Prime Minister who supports a hard Brexit are keeping investors from buying Sterling today.

Pound to Euro (GBP/EUR) Exchange Rate Gains, But Advance Limited amid No-Deal Brexit Fears

European Central Bank (ECB) President Mario Draghi made fresh comments this morning that finally hinted at the more dovish stance some investors had been waiting for, and the Pound Sterling to Euro (GBP/EUR) exchange rate was able to push higher as a result/

After fluctuating around €1.12 last week, the Pound to Euro (GBP/EUR) exchange rate hit new multi-month lows yesterday.

After the comments from ECB President Draghi, GBP/EUR rebounded slightly but the pairing is still clinging to €1.1195.

The appeal of Pound Sterling (GBP) exchange rates has been limited due to concerns that Britain’s next Prime Minister could be more willing to pursue a no-deal Brexit, while the Euro’s (EUR) losses are limited as Draghi’s comments did not significantly impact the Eurozone outlook.

Pound (GBP) Exchange Rates Struggle to Avoid Losses as Jitters Rise over Boris Johnson

No-deal Brexit fears have returned in full force since last month, and with UK political uncertainty likely to continue for some time Pound (GBP) Sterling exchange rates have been lacking support.

Developments in the ongoing Conservative Party leadership contest have done little to help the Pound either.

Prominent Brexiteer Boris Johnson has emerged as the clear frontrunner in the early stages of the contest. While this has diminished some market uncertainty over who Theresa May’s successor will be, Johnson’s harder stance is keeping no-deal Brexit fears elevated.

Investor concerns about the possibility of a no-deal Brexit limited the Pound’s gains against the Euro today. According to Charalambos Pissouros, Senior Market Analyst at JFD Group:

‘Fears of a disorderly exit could keep the path of least resistance to the downside,’

A second round of MP voting for the Conservative Party leadership contest will take place this evening. Another decisive win for Johnson could impact the Pound Sterling to Euro (GBP/EUR) exchange rate.

Euro (EUR) Exchange Rates Slump as Draghi Hints that Looser Monetary Policy is Possible

Recent weakness in Eurozone data, as well as some lingering US trade tensions, had left investors anxious that the Eurozone’s economy is weakening and that the European Central Bank (ECB) is not being accommodative enough with monetary policy.

The ECB’s recent stance remained cautiously optimistic, but analysts predicted that it would become more dovish amid continued pressure from weakness in Eurozone data.

Over the weekend, some ECB officials stated that the bank would continue to act as necessary, including easing monetary policy.

Expectations that the ECB could loosen monetary policy rose today as ECB President Mario Draghi said in a speech that the bank could cut rates or reintroduce quantitative easing (QE) if Eurozone inflation did not improve.

The Euro tumbled in response to the comments, as well as some weaker-than-expected Eurozone inflation in May, although as the comments were not surprising the GBP/EUR exchange rate still struggled to recover all of yesterday’s losses.

Pound to Euro (GBP/EUR) Exchange Rate Traders Await Political and Central Bank News

The Pound to Euro (GBP/EUR) exchange rate could be in for even more significant moves in the coming days, with political developments expected in the UK, and central bank news for Euro (EUR) investors to react to.

The second round of MP voting in the Conservative Party leadership contest will take place this evening. Any notable changes in popularity from the first round last week could prove influential to the Pound (GBP).

However, the Euro’s movement is likely to be the primary cause of GBP/EUR movement in the coming days.

European Central Bank (ECB) President Mario Draghi will hold further speeches today and tomorrow, and his comments will be closely listened to for ECB monetary policy signals.

Tomorrow’s Federal Reserve policy decision will also be influential for the Pound to Euro (GBP/EUR) exchange rate, as if the Fed is less dovish than expected investors will become more concerned about Eurozone-US policy divergence again.

Josh Jeffery

Contact Josh Jeffery


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