UK Economic Concern Keeps Pound Sterling to Euro (GBP/EUR) Exchange Rate From Recovering

Pound to Euro Exchange Rate Struggles to Advance as UK Outlook Grim

Updated 16:38 BST 12/06/2020:

The Pound Sterling to Euro (GBP/EUR) exchange rate struggled to record any major gains on Friday. This is despite a lack of fresh strength in the Euro (EUR).

The morning’s concerning UK ecostats merely added to existing concerns about Britain’s outlook.

According to Vasileios Gkionakis, Head of FX Strategy at Lombard Odier, the Pound’s outlook just isn’t as appealing as some other currencies, even relatively risky ones:

‘Little progress has been made on Brexit… the UK economy is going to lag the rest of the developed markets’

Unless next week’s Bank of England (BoE) news or UK data impresses investors, Sterling may be in for further losses.

(Originally publushed 09:28 BST 12/06/2020)

Pound to Euro Exchange Rate Unable to Recover after Yesterday’s Tumble 

After holding its ground for most of the week, the Pound Sterling to Euro (GBP/EUR) exchange rate tumbled yesterday. Investors piled into the Euro (EUR), and the shared currency is still strong as UK data weighs on the Pound (GBP). 

Since opening this week at the interbank level of 1.12, GBP/EUR briefly saw mixed movement. Since yesterday though GBP/EUR has trended much lower, with the pair shedding almost a cent.  

GBP/EUR touched on a June low of 1.10 yesterday, but is trending closer to the region of 1.11 at the time of writing on Friday morning. 

The Pound’s gloomy outlook is weighing too heavily on its appeal. Meanwhile the Euro continues to benefit from the global economic outlook and weakness in rivals. 

Pound (GBP) Exchange Rates Kept Weak as Britain’s Ecostats Paint a Dire Picture 

This morning saw the publication of Britain’s April growth, trade and production results. 

As April was the first full month of Britain’s coronavirus lockdown measures, the data was already widely expected to show huge contractions in activity. 

However, the contractions in activity were even bigger than expected. In particular, production sectors suffered huge losses in activity. Overall, Britain’s three-month average growth rate came in at –10.4% in April rather than the expected –10%. 

Analysts have noted that markets have become used to dire numbers in recent weeks. Still, while not a massive shock to Pound investors, it didn’t exactly help the currency. Sterling was already unappealing due to concerns over the British government’s coronavirus and Brexit plans. 

Euro (EUR) Exchange Rates Remain Appealing on Optimistic Eurozone Outlook 

Strong market demand for the Euro (EUR) has continued into this week. It has been largely due to market comparisons between the Eurozone’s coronavirus situation and those of the US and UK. 

While US and UK governments are struggling to contain the coronavirus pandemic, EU nations are perceived as having done a better job. 

In particular, the US outlook is concerning investors this week. The Federal Reserve took a surprisingly dovish stance on the US economic outlook at its June policy decision and indicated that interest rates would remain near zero until the end of 2022. 

Expectation for continued US economic weakness and low yields left the US Dollar (USD) less appealing as a safe haven. Due to the currencies sharing a negative correlation, the Euro has been benefitting from US Dollar weakness this week too. 

Pound to Euro (GBP/EUR) Exchange Rate Could Fall Further if Bank of England Gets Gloomy 

The Pound to Euro (GBP/EUR) exchange rate is likely to remain under pressure going forward. There is a lack of support for the Pound (GBP), and the Euro (EUR) continues to benefit from rival weakness. 

With Britain’s coronavirus situation still concerning investors and the Brexit process not seeing any positive developments, the Pound will remain weak. 

Sterling investors are also anxious about next week’s Bank of England (BoE) policy decision. It will take place on Thursday. 

The bank is expected to ramp up its quantitative easing (QE) plans, but of particular interest will be the tone the bank takes on the possibility of negative interest rates. 

The BoE is yet to fully rule out negative interest rates. Any indication that they are possible could cause huge Pound losses. 

Some key Eurozone data will be published throughout next week. Overall though, the shared currency’s appeal as a safe haven over its rivals could well keep the Pound to Euro (GBP/EUR) exchange rate under pressure going forward. 

Josh Jeffery

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