Lower Odds of BoE Interest Rate Cut Encourage Pound Euro (GBP/EUR) Exchange Rate Recovery
Comments from Bank of England (BoE) chief economist Andy Haldane encouraged the Pound Sterling to Euro (GBP/EUR) exchange rate to recover some of its lost ground today.
As Haldane emphasised the fact that the central bank is not anywhere close to implementing negative interest rates the mood towards Pound Sterling (GBP) improved.
While Haldane’s comments also acknowledged that the UK economy likely suffered a severe contraction in the second quarter he noted that data has so far proved a little better than the BoE’s expectations.
With lockdown conditions easing further hopes of a greater third quarter recovery helped to boost GBP exchange rates, unwinding some of last week’s declines.
EUR Exchange Rates Slide as ECB Warns of Increased Eurozone Financial Vulnerabilities
The mood towards the Euro (EUR) generally soured, meanwhile, in the wake of the European Central Bank’s (ECB) latest financial stability review.
The ECB’s warning that the Covid-19 crisis has increased financial vulnerabilities within the currency union, raising the risk of another Eurozone crisis, naturally spooked markets.
This weighed heavily on demand for the single currency, even though the GfK German consumer confidence index for June showed a fresh improvement.
While consumer sentiment looks set to steadily recover in the coming months, provided that lockdown restrictions continue to ease, this was not enough to keep EUR exchange rates from weakening.
Euro Set for Fresh Volatility on Commentary from ECB President Lagarde
Comments from ECB President Christine Lagarde could fuel fresh Euro selling pressure tomorrow if she shows similar signs of caution.
With investors already pricing in high odds of the central bank delivering fresh monetary loosening measures at its June policy meeting support for the single currency could prove limited.
Even so, if Lagarde reaffirms the ECB’s commitment to supporting the Euro and the economic health of the Eurozone this could put a floor under EUR exchange rates.
Signs of improvement in May’s French business and consumer confidence indexes may also limit the risk of further Euro losses in the near term.
As long as France appears on track to recovery from the Covid-19 disruption the GBP/EUR exchange rate may struggle to gain fresh traction.
Political Pressures at Risk of Weighing on GBP/EUR Exchange Rate
With major UK data releases lacking from the calendar this week the Pound may face increased pressure from domestic political developments.
Controversy over the actions of Dominic Cummings could put a dampener on GBP exchange rates this week if tensions within the government continue to grow.
The possibility of fresh political disruption as the country begins its long road to recovery from the current crisis may limit the appeal of the Pound in the days ahead.
Even so, as long as markets remain optimistic over the possibility of the global economy returning to normal in the coming months this could limit selling pressure on the Pound as a greater sense of risk appetite persists.