Pound to Euro Exchange Rate Fails to Sustain Gains as Eurozone Data Shows Signs of Recovery
Despite last week’s jump in European Central Bank (ECB) interest rate cut bets, the Pound Sterling to Euro (GBP/EUR) exchange rate struggled to sustain much in the way of gains before markets closed, as some late-week Eurozone data bolstered Euro (EUR) support.
After opening last week at the interbank level of 1.12, GBP/EUR saw mixed movement. The pair briefly touched on a post-January low of 1.11 on Tuesday before rebounding in the second half of the week.
Despite this rebound though, GBP/EUR slipped again on Friday due to Eurozone PMI data, and on Friday afternoon was trending just below the week’s opening levels again.
The Pound (GBP) also remained pressured throughout the week, as political jitters persisted and the latest Bank of England (BoE) news was less hawkish than hoped.
Pound (GBP) Exchange Rates Pressured as Brexit Dominates UK Economic and Political Jitters
A slightly stronger Euro (EUR) was able to easily push the Pound (GBP) lower towards the end of last week, as the British currency remained unappealing overall due to ongoing Brexit fears.
The Conservative Party leadership contest has now entered its final phase, where the two remaining candidates will face a vote from the Conservative Party’s wider membership.
Around 160,000 members will vote over the course of the next month. However, hard Brexit advocate Boris Johnson is the clear frontrunner and analysts generally predict he will be Prime Minister by the end of July.
Due to Johnson’s willingness to embrace a no-deal Brexit though, his presumed success is keeping the Pound unappealing too. According to analysts from ING:
‘Johnson is the firm favourite and based on our scenario analysis of a Johnson leadership, GBP could run into trouble this autumn,’
On top of political jitters, investors are also anxious that Brexit uncertainties have dampened the Bank of England’s (BoE) hawkishness. Since the bank’s less hawkish tone last week, some analysts are predicting that an interest rate cut may even be the BoE’s next move.
Euro (EUR) Exchange Rates See Stronger Support as Eurozone PMIs Beat Forecasts
Earlier in the week, investors sold the Euro (EUR) in response to a surprising dovish shift in tone from European Central Bank (ECB) President Mario Draghi.
While analysts predicted the ECB would be pressured into becoming more dovish soon, Draghi’s comments still surprised investors and caused ECB interest rate cut bets to rise.
Due to most recent Eurozone data disappointing investors, the Euro was weaker on ECB speculation for most of the week.
However, demand for the Euro recovered slightly on Friday, when the Eurozone’s June PMI projections were published and many figures came in higher than expected.
Most notably, German services and manufacturing beat forecasts, though the Eurozone’s overall manufacturing result still fell short of expectations.
While the data did highlight weaker performance in smaller Eurozone economies, analysts said that the data showed that things in France and Germany were improving. According to Chris Williamson, Chief Business Economist at Markit:
‘growth trends between the core and the periphery have widened. Germany and France are both showing improved performances compared to earlier in the year as one-off factors (such as the political unrest in France) continue to drop out of the picture’
Pound to Euro (GBP/EUR) Exchange Rate Investors Await Eurozone Inflation Stats over Coming Week
Most of the focus for GBP/EUR investors over the coming week will be on data due towards the end of the week.
On Monday and Tuesday, the only data worthy of note will be German business confidence from Ifo, French business confidence, and some speeches from European Central Bank (ECB) officials.
During his surprisingly dovish speech last week, ECB President Mario Draghi noted that the bank was most likely to loosen Eurozone monetary policy if Eurozone price pressures did not improve.
With German and Eurozone inflation rate projections for June due for publication towards the end of the coming week, it’s likely that Eurozone inflation and ECB policy bets will once again be the primary driver of GBP/EUR movement.
If German inflation on Thursday or Eurozone inflation stats on Friday come in higher than expected for example, the Pound to Euro exchange rate could weaken as ECB loosening bets lighten and the Euro (EUR) strengthens.
Of course, weaker inflation would have the opposite effect, leading to higher ECB interest rate cut bets and a weaker Euro. Comments from ECB officials may also influence ECB bets throughout the week.
As for the Pound (GBP), unless there are surprising political developments the British currency’s movement may be limited.
Friday’s UK growth and business investment stats could also cause some Pound to Euro (GBP/EUR) exchange rate movement.