Pound Euro (GBP/EUR) Exchange Rate Hits 17-Day High as Eurozone Business Confidence Tanks

Plunge in Eurozone Business Sentiment Shores up Pound Euro (GBP/EUR) Exchange Rate

As the latest Eurozone business confidence index slumped sharply on the month this encouraged the Pound Sterling to Euro (GBP/EUR) exchange rate to gain fresh ground.

While the index dropped from 103.4 to 94.5 in March the data was largely collated before many Eurozone nations implemented quarantine measures.

As a result, the extent of the month’s deterioration in sentiment could prove even sharper than the index suggests.

Even though the European Central Bank (ECB) still stands ready to act further in order to shore up the currency union this was not enough to keep the Euro (EUR) from softening at this stage.

Pound Struggles to Capitalise on Mortgage Approvals Data

While UK mortgage approvals showed a strong increase in February this offered limited support to Pound Sterling (GBP), meanwhile.

With the domestic housing market looking set to grind to a standstill in March, likely remaining muted for some weeks to come, the impact of the data proved limited.

As the UK remains on track for a major recession in the first half of 2020, thanks to the fallout of Covid-19, the Pound struggled to gain any major traction this morning.

Even so, the GBP/EUR exchange rate benefitted from the relative weakness of the single currency as worries over the health of the Eurozone economy continued to mount.

GBP/EUR Exchange Rate Gains to Ease as Fourth Quarter UK GDP Stagnates

Although no change is expected from the finalised fourth quarter UK gross domestic product report this could still put pressure on the GBP/EUR exchange rate.

Confirmation that the economy stalled in the final three months of 2019 would not bode well for the outlook, lending weight to bets that a first quarter contraction is in store.

Any evidence of greater underlying weakness within the UK economy could put a fresh dampener on the Pound.

On the other hand, if the report highlights a degree of resilience within the UK’s economic performance this may limit the potential for any further GBP/EUR exchange rate weakness.

However, as forecasts point towards a sharp drop in the latest GfK UK consumer confidence index the Pound may see limited upside potential in the near future.

Further Euro Selling Forecast on Weak Eurozone Manufacturing PMIs

March’s finalised set of Eurozone manufacturing and services PMIs may help to drag the Euro lower across the board, however.

After the significant declines seen in the initial set of manufacturing PMI estimates markets are wary of the potential for any downward revisions.

As long as the data confirms that the Eurozone manufacturing sector sunk deeper into a state of contraction at the end of the first quarter EUR exchange rates look set to shed fresh ground.

Unless investors see signs of the manufacturing decline bottoming out in the coming months this could weigh heavily on the single currency, helping to lift the GBP/EUR exchange rate towards fresh highs.

Louisa Heath

Contact Louisa Heath