Euro to Pound Exchange Rate Gaining on European Central Bank (ECB) and Brexit Bets
While the Euro to Pound Sterling (EUR/GBP) exchange rate is on track to end this week lower, the pair has seen a decent recovery from its worst levels as investors have begun to buy the recently unappealing Euro (EUR) back from its lows.
Since opening this week at the interbank level of 0.89, EUR/GBP has largely trended with a downside bias. Ahead of the European Central Bank (ECB) policy decision yesterday, EUR/GBP touched on a monthly low of 0.88 before rebounding.
EUR/GBP has been climbing steadily since then. At the time of writing on Friday morning, EUR/GBP trended closer below the week’s opening levels.
European Central Bank (ECB) interest rate cut bets softened slightly following yesterday’s policy decision, but next week’s anticipated Eurozone growth and inflation stats could stop any bullishness short if they disappoint.
Euro (EUR) Exchange Rates Recover as European Central Bank (ECB) Less Dovish Than Expected
Investors have been hesitant to buy the Euro (EUR) in recent weeks, as continued signs of weakness in Eurozone manufacturing, especially in Germany, left markets concerned that the bloc’s economic activity was still suffering a slowdown.
As a result, yesterday’s European Central Bank (ECB) policy decision came as a modest surprise to some investors, as the bank was a little less dovish than markets expected.
The ECB left monetary policy frozen as expected, and offered more solid signals that it could cut Eurozone interest rates and introduce new monetary policy easing as soon as September.
However, ECB President Mario Draghi played up optimistic aspects of the Eurozone’s economy in his following press conference, softening some of the market’s bearishness.
He said that Eurozone employment remained strong and that this would support the economy even if manufacturing remained weak for a while.
The Euro, which had been tumbling in the run up to the decision, rebounded slightly following Draghi’s comments. Still, ECB interest rate cut bets for September persist, so the shared currency’s potential for gains has been limited.
Pound (GBP) Exchange Rates Fail to Hold Mid-Week Bounce as Brexit Fears Return
While the Pound (GBP) rebounded from its worst levels in the middle of the week due to some relief that the Conservative Party leadership contest had finally concluded, analysts believed the Pound’s recovery would be limited.
The perceived chances of a no-deal Brexit are rising under Boris Johnson’s new government.
Market hopes for Johnson to successfully negotiate a new deal with the EU have already hit an obstacle as well, as overnight the EU reiterated its firm negotiation stance.
Johnson has said he will renegotiate a different deal with the EU, but European Commission President Jean-Claude Juncker told Johnson that the current withdrawal deal is the only one the EU is willing to offer.
Unless either side shows movement on their stances to the deal, the chances of a no-deal Brexit becoming reality in October will rise.
Euro to Pound (EUR/GBP) Exchange Rate Anticipates Key Eurozone Data and Brexit Developments
The Euro to Pound (EUR/GBP) exchange rate is on track to end the week close below the week’s opening levels, as the Euro’s (EUR) recovery was not enough to help it recoup losses against the Pound’s (GBP) solid mid-week rebound.
For now, investors are looking ahead to next week, when key Eurozone data is likely to keep driving European Central Bank (ECB) speculation and the Euro’s movement.
Major Eurozone ecostats will be published throughout the week, with business and consumer confidence due on Tuesday, as well as French growth and German inflation.
More vital stats such as German retail sales and unemployment, French inflation, and the Eurozone’s overall inflation, unemployment, and growth projections, will come in on Wednesday.
With such major Eurozone ecostats on the way, this data is likely to drive EUR/GBP movement next week unless there are major Brexit developments.
Any signs that the Boris Johnson government could shift its stances on its plans for Brexit could be hugely influential for the Euro to Pound (EUR/GBP) exchange rate, for example.