Rapid Rise in UK House Prices Offers Limited Support to Pound Euro (GBP/EUR) Exchange Rate
An unexpectedly strong Nationwide housing price report was not enough to keep the Pound Sterling to Euro (GBP/EUR) exchange rate from giving back some of its recent gains this morning.
While house prices defied expectations, surging 2% on the month in August, this failed to encourage any fresh sense of demand for Pound Sterling (GBP).
This swelling in house prices comes on the heels of the recently implemented stamp tax holiday, a move which appears to have dramatically stimulated the flagging housing market.
However, with prices delivering their largest monthly increase since 2004 investors see the risk of a housing bubble developing as the gap between prices and average earnings increases further.
With the Pound’s earlier sense of bullishness fading there was little to prevent the GBP/EUR exchange rate from softening today.
Softening Eurozone Labour Market Weighs on Euro (EUR) Exchange Rates
Fresh signs of weakness within the Eurozone labour market kept the Euro (EUR) under pressure against many of the majors, meanwhile.
A solid uptick in Spain’s unemployment change figure limited the appeal of the single currency as investors continue to weigh up the likely ultimate impact of the Covid-19 pandemic.
In the wake of yesterday’s surprise fall into deflation for the Eurozone the rising odds of further European Central Bank (ECB) stimulus measures to come have continued to weigh on the Euro.
While no imminent change in monetary policy appears likely in the near term the central bank’s dovish tilt looks set to generally hamper the upside potential of EUR exchange rates.
GBP/EUR Exchange Rate Looks for Boost on Underwhelming Eurozone Services PMIs
The mood towards the Euro could sour further on the back of Thursday’s finalised raft of Eurozone services PMIs.
Confirmation that expansion within the service sector slowed across the currency union last month may offer the GBP/EUR exchange rate a fresh boost.
In the face of deflation and slowing economic activity fears of a deeper slowdown could prompt investors to pile out of the single currency once again.
Unless the Eurozone can demonstrate evidence of resilience the prospect of a more protracted economic decline looks set to weigh on EUR exchange rates.
Solid Growth in UK Services PMI Set to Boost Pound Strength
Demand for the Pound, on the other hand, may pick up further thanks to a strong performance from August’s UK services PMI.
With markets expecting to see a solid uptick in sector activity for the month worries over the underlying health of the UK economy look set to ease in the near term.
Although the questions of Brexit and the full impact of the ongoing pandemic remain the GBP/EUR exchange rate may still push higher in the days ahead.
As long as investors see a reason to bet that the service sector recovered further momentum on the month the risk of a sharp slowdown in the UK gross domestic product should ease.
However, if the PMI fails to perform as forecast the Pound could stumble against its rivals, pushing the GBP/EUR exchange rate away from its recent three-month high.