Pound Euro (GBP/EUR) Exchange Rate Holds Steady on UK Mortgage Approvals Surprise

UK Mortgage Approvals Jump Shores up Pound Sterling Euro (GBP/EUR) Exchange Rate

A stronger-than-expected month of UK mortgage approvals helped to keep the Pound Sterling to Euro (GBP/EUR) exchange rate on a positive footing.

This uptick came as a surprise to investors, given the elevated levels of Brexit-based anxiety and political uncertainty seen in November as markets braced for the snap general election.

As mortgage approvals surged to their highest level since January 2017 this encouraged hopes that UK households could have shrugged off political concerns for much of the fourth quarter.

With fresh political developments thin on the ground in the final days of the year this positive showing added to existing support for Pound Sterling (GBP), in spite of lingering questions over the shape of the future relationship between the UK and EU.

Signs of Eurozone Manufacturing Slowdown to Limit Euro Upside

The mood towards the Euro (EUR) could sour further over the course of the week if December’s finalised set of Eurozone manufacturing PMIs weaken as forecast, meanwhile.

Confirmation that manufacturing sector activity across the currency union contracted in the final month of 2019 could cast renewed doubt over the health of the Eurozone outlook.

While markets see little risk of the Eurozone or German economies slipping into a state of contraction in the fourth quarter any fresh signs of slowdown could weigh heavily on the single currency.

Any negative revision to the manufacturing PMIs may prompt EUR exchange rates to slump sharply on Thursday.

Underwhelming UK Manufacturing Forecast to Drag on GBP Exchange Rates

However, the GBP/EUR exchange rate also looks set to come under pressure with the release of the finalised UK manufacturing PMI.

Unless the index sees an upward revision from its underwhelming initial reading this could limit the appeal of the Pound.

With signs pointing towards a weaker UK economic performance in the fourth quarter a confirmed manufacturing contraction may put a fresh dampener on GBP exchange rates.

While the manufacturing sector only accounts for a limited fraction of the UK’s economic activity another weak showing here could still drag on the Pound.

On the other hand, if the PMI proves less weak than originally estimated this may encourage the GBP/EUR exchange rate to hold onto its positive footing.

Euro Set for Gains on German Inflation Uptick

Further volatility looks likely for EUR exchange rates ahead of the weekend on the back of the latest German consumer price index report.

Forecasts point towards a fresh acceleration in inflationary pressure on both the month and the year, raising the headline inflation rate from 1.1% to 1.4%.

Although this would still fall some way short of the European Central Bank’s (ECB) 2% inflation target such a solid uptick could still offer EUR exchange rates a boost.

Evidence of a resurgence in price pressures within the Eurozone’s powerhouse economy would open the door for a Euro rally, with higher inflation reducing the case for additional ECB monetary loosening.

Louisa Heath

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