Pound Euro (GBP/EUR) Exchange Rate Edges Higher as ECB Hawk Announces Departure

GBP/EUR Exchange Rate Nudges Higher as MPs Reject Mini-Recess

UPDATE: Negative market reaction to the loss of a prominent European Central Bank (ECB) hawk helped the Pound Sterling to Euro (GBP/EUR) exchange rate to nudge into positive territory this afternoon.

As MPs voted down the prospect of a mini-recess for next week’s Conservative Party conference some of the political anxiety gripping the Pound eased.

While the odds of an early general election are still higher than markets would like this was not enough to prevent the GBP/EUR exchange rate edging a little higher.

Rising German Consumer Confidence Adds to Pound Euro (GBP/EUR) Exchange Rate Weakness

As the German GfK consumer confidence index unexpectedly picked up from 9.7 to 9.9 in October the Pound Sterling to Euro (GBP/EUR) exchange rate remained under pressure.

With German sentiment showing signs of improvement, in spite of a decline in business confidence, the Euro (EUR) found some support against its rivals.

However, the mood towards the single currency soon soured in response to news that European Central Bank (ECB) policymaker Sabine Lautenschlaeger will resign before the end of her full term.

As Lautenschlaeger was one of the more hawkish ECB policymakers, having pushed back against September’s policy action, the risk of future dovishness appeared to increase.

With Lautenschlaeger set to depart at the end of October the risk of the central bank engaging in further loosening before the end of the year mounted.

UK Political Chaos Drags on Pound Sterling

Support for Pound Sterling (GBP), on the other hand, remained muted as markets continued to observe the latest developments in Westminster.

The return of parliament did little to ease investors’ sense of political anxiety yesterday, with the threat of an early general election still hanging over markets.

As MPs appear no closer to resolving the key issue of Brexit GBP exchange rates were left to trend lower across the board, driven by the persistent lack of certainty investors face.

With Boris Johnson resisting calls for his resignation this latest bout of political turmoil looks set to linger for some time to come.

Limited UK Consumer Confidence to Offer Little Support to GBP/EUR Exchange Rate

September’s UK GfK consumer confidence index looks set to keep the GBP/EUR exchange rate on a weaker footing, with forecasts pointing towards a steady reading.

If the index clocks in at -14 as expected this could keep the Pound under pressure as signs point towards a sustained decline in consumer sentiment.

Given the role that higher levels of consumer spending played in shoring up economic growth earlier in the year any continued weakness here is likely to weigh heavily on GBP exchange rates.

Unless the index shows a shift towards positive territory the Pound may struggle to return to a positive trend ahead of the weekend.

Lacklustre German Price Pressures Set to Weigh Down Euro

Fresh weakness may be in store for EUR exchange rates on Friday, however, if August’s German import price index figures prove underwhelming.

With prices expected to show another sharp contraction on both the month and the year this is likely to weigh heavily on the inflationary outlook.

Fresh evidence of lacklustre German inflation could fuel the case for further ECB monetary loosening, to the detriment of the single currency.

Unless markets see greater cause for confidence in the outlook of the Eurozone’s powerhouse economy the GBP/EUR exchange rate could gain some ground.

Louisa Heath

Contact Louisa Heath