Pound Sterling Euro Exchange Rate News: GBP/EUR Bounces Back, But will Political Uncertainty Cap Further Gains in Sterling?

GBP/EUR Exchange Rate Buoyed as UK Politics Remains in Focus

The Pound Sterling to Euro (GBP/EUR) exchange rate is accelerating this morning as the pairing recoups yesterday day’s loses, amid the absence of fresh political uncertainty in the UK.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1206, up around 0.3% from this morning’s opening rate.

The Pound (GBP) Gains, Political Risks Remain However

The Pound (GBP) is trending higher against the Euro (EUR) and the majority of its other peers this morning as a lull in Brexit headlines appears to have given Sterling some respite.

While political uncertainty in the UK related to the Conservative leadership election remains a major drag on Sterling sentiment, investors appear reluctant to make any more bearish bets on the UK currency, absent any fresh catalyst.

Potentially providing some lift to GBP exchange rates however was an interview with Boris Johnson, in which the frontrunner of the Tory leadership race admitted his plans to renegotiate with the EU would require the co-operation of Brussels.

Johnson also said he did ‘not believe for a moment’ that the UK will face a no-deal Brexit, appearing to strike a less hardline stance than he has before.

Euro (EUR) Muted as ECB’s De Guindos Warns Banking Sector of Impact of Negative Rates

At the same time, the Euro (EUR) is on the back foot this morning after the European Central Bank (ECB) Vice President Luis De Guindos issued a stark warning to the Eurozone banking sector.

De Guindos warned that already weak profitability in Eurozone banks could be further undermined by slowing growth.

De Guindos said:

‘Banks’ profitability prospects could thus be dampened by deteriorating growth expectations, adding to structural weaknesses.’

He also suggested that the ECB will need to closely monitor the potential impact of negative impact rates on the banking sector, dropping further hints that a rate cut could be on the cards for the ECB later this year.

‘Overall effect of our monetary policy on bank profitability has so far been broadly neutral.

‘Effects of negative rates on the banking sector need to be carefully monitored, particularly because the balance of their effects will depend on how long rates remain.’

GBP/EUR Exchange Rate Forecast: Will Weak CBI Data Soften Sterling?

Looking ahead, the Pound Euro (GBP/EUR) exchange rate may face some hurdles later this morning with the publication of the Confederation of British Industry’s (CBI) distributive trades index.

Economists forecast the index will show that domestic retail activity continued to decline in June, likely denting Sterling as it lends further support to suggestions that the UK economy will have stagnated in the second quarter.

Meanwhile, the focus for EUR investors will be on the latter half of the week and the release of the Eurozone’s latest Consumer Price Index.

The CPI figures are expected to show that inflation in the bloc remained relatively subdued this month at 1.2%, something which will likely increase the odds of the ECB lowering interest rates later this year.

Matthew Andrews

Contact Matthew Andrews