Snap Election Fears Push Pound Euro (GBP/EUR) Exchange Rate to 2-Week Low

Fears of Imminent UK General Election Drives Pound Euro (GBP/EUR) Exchange Rate Lower

As speculation over the likelihood of an imminent snap election mounted the Pound Sterling to Euro (GBP/EUR) exchange rate extended its slide further.

With a group of Conservative MPs expected to rebel in an attempt to block a no-deal Brexit scenario confidence in Pound Sterling (GBP) weakened significantly.

The possibility of a successful vote of no confidence in Boris Johnson has spooked investors, given the limited timeframe now left before the October Brexit deadline.

As long as the UK appears at high risk of crashing out of the EU without a deal GBP exchange rates are likely to remain exposed to selling pressure.

Signs of Weaker Eurozone Inflation Set to Limit GBP/EUR Downside

However, the mood towards the Euro (EUR) could also sour this morning if July’s Eurozone producer price index figures prove underwhelming.

Another month of contraction in producer prices would encourage bets that inflationary pressure within the currency union is failing to pick back up.

With the European Central Bank (ECB) already biased towards loosening monetary policy at its September meeting, a weak showing here would only add to the case for dovish action.

Unless inflationary pressure shows signs of recovering the GBP/EUR exchange rate could find some support on the back of the data.

GBP/EUR Exchange Rate Unlikely to Benefit from UK Construction PMI

The release of August’s UK construction PMI is not likely to offer any particular boost to GBP exchange rates in the short term.

Although forecasts point towards the index strengthening from 45.3 to 45.9 on the month this would still signal an overall contraction for the sector.

Continued signs of a slowdown within the construction sector would fuel anxiety over the outlook of the wider UK economy, especially in the face of ongoing political uncertainty.

Even so, if the PMI betters expectations and returns to a state of positive growth this may help to limit the downside potential of the GBP/EUR exchange rate for the time being.

Soft Eurozone Retail Sales Forecast to Dent Euro (EUR) Demand

EUR exchange rates could come under greater pressure tomorrow as markets brace for the release of the latest set of Eurozone retail sales data.

With sales expected to see a marked -0.6% decline on the month, signalling a weakening in consumer confidence, the appeal of the Euro could diminish.

As stronger levels of domestic consumption have previously helped to counterbalance the impact of weakening manufacturing sector activity a decline could weigh heavily on the minds of investors.

Without evidence of resilience within the Eurozone economy, the GBP/EUR exchange rate could stall its current slide, even in the face of the unfolding political drama in the UK.

Louisa Heath

Contact Louisa Heath