UK House Price Decline Adds to Pound Euro Exchange Rate Softness

Slowing UK Housing Market Limits Pound Sterling Euro (GBP/EUR) Exchange Rate Support

The Pound Sterling to Euro (GBP/EUR) exchange rate remained under pressure this morning as July’s RICS house price index revealed another month of weakness within the housing market.

With households appearing to maintain a cautious outlook in the face of the ongoing uncertainty surrounding Brexit support for Pound Sterling (GBP) remained generally limited.

Anxiety over the prospect of a potential no-deal scenario continued to mount even as MPs pushed back against Boris Johnson’s insistence on exiting the EU at the end of October even without a deal in place.

As the issue of Brexit looks set to rumble on for some months to come this air of uncertainty could keep the Pound under pressure for the foreseeable future.

EUR Exchange Rates Stumble as ECB Bulletin Signals Cautious Outlook

However, the Euro (EUR) struggled to capitalise on the relative softness of the Pound thanks to the release of the European Central Bank’s (ECB) latest Economic Bulletin.

Expressing continued caution over the health of the Eurozone economy, the report noted that:

‘The prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets, is dampening economic sentiment, notably in the manufacturing sector. In this environment, inflationary pressures remain muted and indicators of inflation expectations have declined.’

With inflation appearing on course to trend away from the ECB’s 2% target for the remainder of the year the case for an interest rate cut continued to mount.

EUR exchange rates naturally came under renewed pressure in the wake of the Bulletin, with investors raising the odds of imminent monetary policy loosening.

Euro Selling Expected on Signs of Weakening German Trade

The mood towards the Euro could sour further ahead of the weekend if June’s set of German trade data weakens as forecast.

Investors expect to see the headline trade surplus narrow from 20.6 billion to 19.8 billion, driven by a fresh slump in export volumes.

Weakness here would bode ill for the outlook of the wider German economy, which has already lost growth momentum in the first half of the year.

As global trade tensions have continued to flare up following the announcement of fresh US tariffs on Chinese products the likelihood of a rebound in German trade appears unlikely in the months ahead.

Fresh evidence of weakness from the Eurozone’s powerhouse economy would add to the case for an ECB interest rate cut, leaving the single currency exposed to further selling pressure.

Slowing Production and Growth Forecast to Weigh on Pound Sterling (GBP)

A raft of UK production and trade data could also drag Pound Sterling down on Friday, however, with markets sensitive to any new signs of economic weakness.

With forecasts pointing towards renewed contraction in both manufacturing and industrial production in June this could encourage GBP exchange rates to trend lower across the board.

Focus will also fall on the second quarter UK gross domestic product, which looks set to put a significant dampener on the Pound.

As quarterly growth is expected to stall, with the headline annual growth rate easing to just 1.4%, the GBP/EUR exchange rate could take a fresh leg lower tomorrow.

Unless growth shows signs of holding up in the face of ongoing political anxiety and trade uncertainty the Pound may fall further out of favour ahead of the weekend.

Louisa Heath

Contact Louisa Heath