Pound to Euro Exchange Rate Rally Comes to an End but Euro Remains Weaker
Many investors sold the Pound (GBP) from its weekend highs this morning, but the Pound Sterling to Euro (GBP/EUR) exchange rate was able to avoid losses amid broad weakness in the Euro (EUR).
Due to Brexit hopes, GBP/EUR climbed for much of last week despite a lack of strong fresh support for Sterling. GBP/EUR rallied from the interbank level of 1.12 and closed the week near the level of 1.13.
On Friday, GBP/EUR even touched on its best levels in over three months, and the pair remained fairly close below those highs when markets opened this week.
The Pound has been weaker today as last week’s rally wears off, but the Euro has been even weaker since this morning’s highly disappointing Eurozone PMI projections were published.
Pound (GBP) Exchange Rates Fall Back Following Two Weeks of Gains
Near the middle of the month, fresh hopes that the UK government could still reach a Brexit agreement with the EU and avoid a no-deal Brexit led to a surge in Pound demand.
These hopes were also responsible for the Pound’s continued advances last week, which came despite a lack of particularly supportive UK news or data.
Domestic data was actually disappointing throughout the week, with inflation and retail sales both coming in well short of expectations.
The Pound was sold back from last week’s rally today, amid concerns that a Brexit solution for Ireland’s border may not be reached.
UK Prime Minister Boris Johnson has reportedly cautioned that an imminent breakthrough in Brexit talks was unlikely.
Euro (EUR) Exchange Rates Plunge on Eurozone Economy Fears
Hopes for Germany and the Eurozone’s economic outlook to start recovering from a 2019 filled with slowdown were doused this morning, as the latest Eurozone PMI projection report from Markit disappointed.
France’s September PMI projections fell closer to the 50.0 point marking stagnation than expected, with the overall composite figure slowing to just 51.3.
Even more concerning however, was Germany’s PMIs. Not only did the key manufacturing print contract at an even deeper than expected 41.4, the services PMI unexpectedly slowed and the composite figure contracted at 49.1.
Overall, the Eurozone’s composite PMI slowed to just 50.4 rather than the forecast 51.9, worryingly close to stagnation.
According to Chris Williamson, Markit’s Chief Business Economist:
‘The overall picture of an economy on the cusp of sliding into decline is underscored by a further deterioration in firms’ pricing power, with average prices charged for goods and services barely rising in September.
With survey data like these, pressure will grow on the ECB to add to its recent stimulus package.’
Pound to Euro (GBP/EUR) Exchange Rate Could Fall if Brexit Outlook Worsens
Despite the Pound’s (GBP) weakness on Brexit jitters today, the Pound to Euro (GBP/EUR) exchange rate avoided major losses amid the Euro’s (EUR) own weakness.
However, while the Euro is likely to remain weak on Eurozone growth concerns, the Pound’s losses could be exacerbated this week if Brexit jitters intensify.
For example, if UK Prime Minister Boris Johnson continues to indicate that a no-deal Brexit is still possible, the Pound is likely to be under further pressure.
On the other hand, Sterling could see some shifts in movement if Britain’s Supreme Court rules that Johnson’s prorogation of parliament was unlawful. This could lead to fresh developments and uncertainty.
The Euro may be in for further losses as well though. Ifo’s German business confidence data from September will be published tomorrow, which could help keep the Pound to Euro (GBP/EUR) exchange rate from falling if it disappoints.