Improved Eurozone Economic Sentiment Drags Down Pound Sterling Euro (GBP/EUR) Exchange Rate
Eurozone economic sentiment picked up further than forecast in February, putting fresh downside pressure on the Pound Sterling to Euro (GBP/EUR) exchange rate this morning.
An uptick from 102.6 to 103.5 helped to temporarily ease market anxiety over the outlook of the currency union, even as global worries over the spread of Covid-19 continued to mount.
While the ultimate extent of the virus outbreak remains to be seen this evidently failed to weigh on business sentiment within the Eurozone, at least for the time being.
As the industrial sentiment index also saw a surprise improvement on the month, even as it remained in negative territory, this offered additional support to the Euro (EUR).
UK Budget Anxiety Weighs Heavily on Pound Sterling
Growing anxiety ahead of the UK’s upcoming budget speech saw Pound Sterling (GBP) trending lower across the board, on the other hand.
Although markets had initially bet on the prospect of Sajid Javid’s departure from the position of Chancellor leading to increased fiscal stimulus the hopes started to fade as the speech drew closer.
With analysts expressing doubts that the budget will be able to offer sufficient stimulation to the UK economy the GBP/EUR exchange rate was left on the back foot.
Unless investors find fresh reason to bet on the possibility of a more significant spending increase the Pound may remain under pressure in the near term.
Pound Looks for Rally on Rising UK Consumer Confidence
Support for the Pound could pick back up ahead of the weekend, however, if February’s GfK consumer confidence index improves as forecast.
As investors expect to see the index inch up from -9 to -8 this could encourage a greater sense of optimism in the economic outlook for the first quarter.
Even if consumer sentiment remains trapped in negative territory any signs of improvement would increase the odds of stronger consumer spending and activity shoring up economic growth.
However, any deterioration in the confidence index could weigh heavily on GBP exchange rates as worries over the health of the UK economy linger.
Unless the economy appears on track to deliver a solid quarter of growth in the first three months of 2019 the appeal of the Pound looks set to weaken.
Solid German Inflation Data Forecast to Boost EUR Exchange Rates
Demand for the Euro, meanwhile, may experience a fresh increase on Friday as long as the German consumer price index data proves encouraging.
While the headline inflation rate looks set to remain steady at 1.7% on the year in February any underlying signs of strengthening price pressures could shore up the single currency.
After the disappointing -0.6% monthly CPI contraction seen in January forecasts point towards a reassuring 0.3% uptick on the month.
As long as inflation appears on course to pick up further over the course of the first quarter the risk of any increased European Central Bank (ECB) dovishness looks set to diminish.
Unless the inflation data falls short of forecast the GBP/EUR exchange rate could struggle to find any particular traction tomorrow.