Pound Nears One-Year Low vs Euro as No-Deal Brexit Risk Escalates

Rising Risk of No-Deal Brexit Drives Pound Euro (GBP/EUR) Exchange Rate Lower

Ongoing anxiety over the growing prospect of a no-deal Brexit kept the Pound Sterling to Euro (GBP/EUR) exchange rate on the back foot today.

With Boris Johnson maintaining a hard line on the subject of Brexit and refusing to meet EU leaders until the Irish backstop is dropped investors saw little cause for confidence.

As a result, the GBP/EUR exchange rate was left trending in the region of a fresh one-year low, looking at risk of further decline in the days ahead.

Although there is some speculation that a general election could be on the cards, given Parliament’s previous rejection of a no-deal Brexit scenario, this was not enough to support Pound Sterling (GBP) at this stage.

Disappointing French Growth Limits Euro Exchange Rate Support

The mood towards the Euro (EUR), meanwhile, remained generally muted as the second quarter French gross domestic product failed to pick up on the year as forecast.

With growth across the Eurozone still proving lacklustre in the face of the general global slowdown the appeal of the single currency diminished further this morning.

A modest dip in the latest German GfK consumer confidence index also put pressure on the single currency, indicating that sentiment within the Eurozone’s powerhouse economy is continuing to soften.

While EUR exchange rates struggled to find much in the way of traction, though, the Euro still benefitted from the relative weakness of the Pound.

Euro Braced to Fall Further out of Favour on Weakening German Inflation

This afternoon’s German consumer price index report could see the Euro fall further out of favour, however, as forecasts point towards a dip in inflation.

If the headline consumer price index eases from 1.6% to 1.5% on the year in July this could see EUR exchange rates extending their current downtrend further.

With the European Central Bank (ECB) already appearing on track to cut interest rates in the near future another underwhelming inflation reading would add to the case for looser monetary policy.

On the other hand, any uptick in inflationary pressure at the start of the third quarter may offer the Euro a rallying point against its rivals.

Steady UK Consumer Sentiment Forecast to Limit Pound Sterling Downside

Tonight’s UK GfK consumer confidence index could help to put a temporary floor under GBP exchange rates, however.

As the index is forecast to hold steady at -13 in July this may limit market anxiety over the health of the economic outlook, with higher levels of spending likely to support domestic growth.

Even so, with the index not accounting for the fallout of Boris Johnson’s success in the Conservative leadership contest the positive impact of any steady reading may prove limited.

Another decline in sentiment, meanwhile, would leave the GBP/EUR exchange rate at risk of falling to fresh lows.

With the threat of a no-deal Brexit only likely to grow in the days ahead the potential for a Pound Sterling recovery appears highly limited.

Louisa Heath

Contact Louisa Heath