Disappointing German Business Sentiment Offers Boost to Pound Euro (GBP/EUR) Exchange Rate
A weaker-than-expected set of German IFO business sentiment indexes helped the Pound Sterling to Euro (GBP/EUR) exchange rate hold onto a positive footing this morning.
While sentiment still showed an improvement on the month in September investors were disappointed that confidence in the business climate had not picked up further at the end of the third quarter.
With various European nations imposing fresh Covid-19 restrictions in response to a second wave of infections worries over the strength of the economic outlook continued to mount.
As the initial summer recovery from the first Covid-19 lockdown appears to have already started to falter investors remain wary of the potential for growth to stall in the second half of the year, leaving the Euro (EUR) exposed to downside pressure.
GBP/EUR Exchange Rate Strengthens Ahead of Chancellor’s ‘Winter Economic Plan’
Support for Pound Sterling (GBP) largely picked up this morning, meanwhile, as markets braced for the announcement of Chancellor Rishi Sunak’s so-called ‘winter economic plan’.
With the government furlough scheme due to end imminently investors are keen to learn details of any plans for further economic support.
As a significant percentage of workers, particularly in the cultural and hospitality sectors, currently remain on furlough there are fears that a fresh wave of job losses could be on the horizon unless the government offers a fresh alternative.
This could see the GBP/EUR exchange rate come under increased pressure this afternoon in the wake of Sunak’s speech in the House of Commons.
The Pound could weaken sharply if markets deem the announced measures to fall short, especially given the still-fragile outlook of the UK economy.
Pound Vulnerable to Negative Consumer Confidence Index
Further pressure could be in store for the GBP/EUR exchange rate ahead of the weekend on the back of September’s GfK consumer confidence index.
As forecasts point towards sentiment remaining in distinctly negative territory at -27 this could cast a fresh shadow over the UK’s economic outlook.
With higher levels of consumer spending having previously helped to shore up the economy in the face of wider slowdown pressures any negative reading here could weigh heavily on the Pound.
A persistent sense of Brexit-based uncertainty and the lingering prospect of tougher Covid-19 restrictions could see consumer confidence deteriorate further, exposing GBP exchange rates to additional selling.
Decline in Eurozone Loans May Weigh on EUR Exchange Rates
Friday’s Eurozone M3 money supply and loans figures may put a fresh dampener on the Euro, on the other hand.
Evidence of the ECB continuing to pump support into the Eurozone economy could offer investors some cause for confidence, given that the central bank has signalled its willingness to keep support flowing.
Even so, with the economic situation looking unlikely to experience any material improvement in the near future thanks to the pandemic this may still dent EUR exchange rates.
Any decline in loans to households or companies may also weigh on the single currency, as growing economic pressure looks set to further undermine the financial strength of both individuals and businesses.