Trade Anxiety Dents Pound Sterling Euro (GBP/EUR) Exchange Rate
A fresh bout of market anxiety over Brexit pushed the Pound Sterling to Euro (GBP/EUR) exchange rate into a renewed slump today as worries over trade intensified.
As trade secretary Liam Fox indicated that a post-Brexit trade deal with the US could prove more difficult than Conservative leadership candidate Boris Johnson suggests this spooked markets.
With a number of issues facing a prospect US-UK trade deal investors were left with little incentive to favour Pound Sterling (GBP) at this juncture.
The prospect of additional trade disruption in the event of a no-deal Brexit, which could not be cushioned by a US deal, left GBP exchange rates on a sharp downtrend this morning.
Demand for the Pound also diminished in response to a disappointing Rightmove house price index, which saw prices contract on the month in July.
Deteriorating German Economic Sentiment Forecast to Drag on Euro (EUR)
The mood towards the Euro (EUR), however, could sour tomorrow if July’s set of ZEW economic sentiment surveys prove underwhelming.
After sentiment saw a sharp decline in June forecasts point towards another month of deteriorating confidence, leaving EUR exchange rates exposed to fresh downside pressure.
With the Eurozone economy already showing signs of struggling to regain its lost momentum in the face of global trade tensions any decline here could dent the appeal of the single currency further.
However, a widening of the Eurozone trade surplus may offer the Euro some degree of support in the short term.
Evidence that export volumes picked up in May, in spite of weaker global trade, could help to limit the vulnerability of the single currency.
GBP/EUR Exchange Rate Looks for Boost on UK Wage Growth
Demand for the Pound could pick up, meanwhile, if UK weekly earnings excluding bonuses are shown to have edged higher in the three months to May.
Evidence of stronger wage growth may encourage the GBP/EUR exchange rate to return to a positive footing as wages continue to outpace inflation.
An uptick here would give the Bank of England (BoE) less incentive to cut interest rates in the near future, reducing the odds of any imminent policy action.
A steady showing from the latest UK unemployment data may offer an additional boost to Pound Sterling, in spite of lingering worries over the economic outlook.
Pound Sterling (GBP) Vulnerable to Signs of Weaker Inflation
However, the GBP/EUR exchange rate could face fresh downside pressure on Wednesday with the release of June’s UK consumer price index report.
Although no change is forecast for the headline annual inflation rate investors anticipate a slowdown in the monthly CPI, suggesting that underlying inflationary pressures are easing.
If the monthly figure stagnates as forecast the mood towards Pound Sterling could sour sharply, with weaker price pressures likely to encourage BoE dovishness.
On the other hand, as weaker inflation would offer a boost to domestic wage growth any negative impact on the GBP/EUR exchange rate could still prove limited.