Pound Euro (GBP/EUR) Exchange Rate Remains Depressed as Eurozone Consumer Morale Improves

Pound Euro Exchange Rate Remains at Two-Week low on Upbeat Eurozone Sentiment 

(Updated 15:45, 22/9/21) The Pound Euro (GBP/EUR) exchange rate remains on the defensive this afternoon, as EUR investors welcomed the latest Eurozone consumer sentiment index, after September’s preliminary reading reported a surprise improvement in consumer morale. 

However, Germany’s IFO economic institute tempered this upside in the Euro, after its slashed its growth forecast for Europe’s largest economy, as it warned about supply chain bottlenecks. 

At the same time, the Pound remains offered this afternoon amid concerns that a UK-US trade deal could be some way off, as the Biden administration made it clear that it does not view a bespoke trade deal as a priority. 

Original article continues below: 

Pound Euro Exchange Rate Dented by Concerns over the UK’s Economic Recovery 

The Pound Euro (GBP/EUR) exchange rate is ticking lower this morning, amidst ongoing uncertainty over the strength of the UK’s economic recovery. 

At the time of writing the Pound Euro exchange rate is trading at around €1.1628, leaving the pairing trading at a two-week low. 

Pound (GBP) Undermined by Economic Concerns 

The Pound (GBP) is trading on the back foot against the Euro (EUR) and many of its other peers this morning, amidst persistent concerns over the UK’s economic resilience. 

The UK’s current energy price crisis -which has seen some industry forced to suspend operations due to the increased costs making them unviable- has exacerbated concerns over the trajectory of the UK’s economic recovery, which some analysts fear is stalling as businesses also contend with staff shortages and supply chain constraints. 

Also limiting the upside potential of the Pound this morning is a sense of caution amongst GBP investors, ahead of the conclusion of the Bank of England’s (BoE) latest interest rate decision on Thursday. 

No policy changes are expected from the BoE this month, so the focus will be on the bank’s forward guidance. While recent commentary from policymakers has been more hawkish in tone, could growing uncertainty over the UK’s economic recovery result in a more cautious outlook from the BoE? 

Euro (EUR) Tempered by German Political Uncertainty 

At the same time, the Euro’s (EUR) gains this morning are capped by German political jitters, ahead of the country’s general election this weekend. 

EUR investors are naturally nervous about the election as it marks the end of Angela Merkel’s time as Chancellor, a figure who has been a reliable source of certainty for EUR investors for 16 years. 

The front runner to replace Merkel is German Finance Minister Olaf Scholz, leader of the centre-left Social Democratic Party (SPD), which has former part of a ‘grand coalition’ with Merkel’s Christian Democratic Union (CDU) for most of her time in office. 

While Scholz is generally viewed as a ‘safe pair of hands’ by EUR investors, his recent refusal to rule out a potential coalition with the far-left Die Linke party, could infuse some volatility into the Euro as coalition talks begin next week. 

Pound Euro Exchange Rate Forecast: Weakening Consumer Confidence to Dent EUR? 

While the BoE’s upcoming rate decision is no doubt the focus for markets, the Pound Euro (GBP/EUR) exchange rate could be influenced in the meantime by the publication of the Eurozone’s latest consumer sentiment index later this afternoon. 

September’s preliminary figures are forecast to report that consumer morale continued to weaken, potentially putting some pressure on the Euro in the second half of today’s session. 

Also potentially determining the direction of the Pound Euro exchange rate ahead of the BoE rate decision will be the latest PMI releases from both the Eurozone and UK. 

This could place some pressure on GBP/EUR tomorrow morning as private sector activity in the Eurozone is predicted to have been more robust than in the UK this month.