Pound Sterling to Euro (GBP/EUR) Exchange Rate at 6-Month Low as UK Confidence Drops

Drop in Consumer Confidence Drags Pound Sterling Euro (GBP/EUR) Exchange Rate to 6-Month Low

An unexpectedly sharp decline in the GfK consumer confidence index saw the Pound Sterling to Euro (GBP/EUR) exchange rate extending its downtrend this morning.

The mood towards Pound Sterling (GBP) rapidly soured on the back of the data, with the deterioration from -10 to -13 highlighting a continued lack of confidence within the UK.

Investors were also spooked by Conservative leadership candidate Boris Johnson’s refusal to rule out proroguing Parliament in order to force through a no-deal Brexit.

With the risk of the UK crashing out of the EU without a deal continuing to increase this prompted the GBP/EUR exchange rate to fall to its lowest level since early January.

Rising Eurozone Inflation Offers Limited Euro (EUR) Exchange Rate Support

June’s Eurozone consumer price index data offered the Euro (EUR) cause for confidence, meanwhile, as inflation picked up further than forecast on the month.

As the monthly inflation rate accelerated from 0.8% to 1.1% this suggests that inflationary pressure within the currency union is not as weak as previously thought.

However, even this improvement is unlikely to alter the current policy outlook of the European Central Bank (ECB), limiting the positive impact on the single currency.

With policymakers still likely to find the inflation data disappointing the odds of interest rates seeing a cut before the end of the year remained elevated.

Positive UK Manufacturing PMI Forecast to Limit GBP Exchange Rate Downside

The mood towards the Pound could improve on Monday, though, as forecasts point towards a rebound in June’s UK manufacturing PMI.

With the index expected to pick up from 49.4 to 52.0 this could encourage greater confidence in the underlying health of the UK economy.

A stronger showing here could help to shore up the second quarter gross domestic product, limiting the odds of a stagnation in growth.

However, if Wednesday’s UK services PMI proves less encouraging in nature this may see GBP exchange rates slump across the board once again.

As the service sector remains the primary growth engine of the UK economy any slowdown here is likely to weigh heavily on the GBP/EUR exchange rate next week.

Euro (EUR) Looks for Boost on German Retail Sales Rebound

No real change is forecast for the Eurozone’s finalised manufacturing PMIs, meanwhile, limiting the potential for further Euro gains.

Any negative revision to the manufacturing data could still weigh heavily on the single currency, though, especially if the German manufacturing sector slides further into contraction territory.

Tuesday’s German retail sales may also put pressure on EUR exchange rates unless consumer spending shows signs of recovering from April’s -2% decline.

Without higher levels of domestic economic activity Germany remains vulnerable to a growth contraction, something which could drag the Euro sharply lower across the board.

Unless the Eurozone’s powerhouse economy demonstrates greater signs of resilience in the face of ongoing global trade anxiety EUR exchange rates look set to trend lower.

Louisa Heath

Contact Louisa Heath