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GBP to EUR Exchange Rate Dip Deepens Following Improving German Confidence

March 25, 2019 - Written by Frank Davies

Despite signs of continued weakness in Eurozone manufacturing, economic sentiment in Germany is reportedly beginning to improve and this made it more difficult for a weaker British Pound to Euro (GBP/EUR) exchange rate to hold its ground this morning. Fresh concerns about the stability of UK politics caused the Pound to fall versus most major rivals.

The Euro’s own weakness was not enough to prevent GBP/EUR losses last week. GBP/EUR opened the week at the level of 1.1739 and spent most of the week tumbling, briefly hitting a one month low of 1.1478 towards the end of the week before rebounding strongly on Friday and closing the week at the level of 1.1687.

GBP/EUR has been sliding since markets opened this week though, on fresh UK political fears and Brexit jitters.

Despite the Euro’s own demand being limited by concerns of the Eurozone’s slowing economic outlook, the shared currency was supported by some stronger than expected German confidence data this morning.

GBP Exchange Rates Volatile as Investors Await Further Brexit Developments

The Pound struggled to hold its ground when markets opened on Monday morning, as investors reacted to the latest uncertainties regarding the Brexit process and the UK government.

When markets opened, the Pound was buffeted by fresh calls for UK Prime Minister Theresa May to announce her resignation from within her own Conservative Party.

Critics of her Brexit plan indicated they would be more likely to vote in favour of her deal if another leader took her place.

It worsened market concerns that the UK could be embroiled in another series of political uncertainties mere weeks before the EU’s new 12th of April Brexit date.

The EU agreed to extend the Brexit process by at least two weeks, but if no alternative is reached then Britain will face a worst-case scenario no-deal Brexit.

According to Michael Hewson, Chief Market Analyst at CMC Markets in London:

‘The extension of the Brexit deadline was shorter than many had hoped and we still have the problem of what type of consensus deal lawmakers can rally around,’

Demand for the Pound found a little stronger support around midday though, as the UK government indicated it would hold its third meaningful Parliament Brexit vote tomorrow and did not indicate that the Prime Minister was planning to step down from her role either.

EUR Exchange Rates Find Support in Slightly Stronger German Confidence

Towards the end of last week, investors sold the Euro as the Eurozone’s latest manufacturing PMI projections from Markit came in well short of expectations.

Eurozone manufacturing is projected to have contracted in March, and German manufacturing’s index contracted deeper rather than lightening as analysts forecast.

Due to this, Euro investors became more anxious about the Eurozone’s economic slowdown, and the Euro tumbled before markets closed last week. The Euro’s losses were only limited by weakness in its rival the US Dollar (USD) amid a more dovish Federal Reserve.

This morning though, demand for the Euro found a little fresh support as Ifo’s latest German business confidence data suggested that things were improving in Germany after all.

Ifo’s business climate figure climbed to 99.6 in March, expectations to 95.6 and current conditions to 103.8. All three prints unexpectedly rose despite being expected to slide.

According to Carsten Brzeski, Economist at ING:

‘Today’s Ifo index ends a period of pessimism and suggests that not all is bad in the German economy. With some (technical) rebounds in industrial production in February and March, the first quarter for the German economy might not be as weak as some have expected.’

GBP/EUR Exchange Rate Forecast: Brexit Developments and Eurozone Confidence Ahead

The UK government has indicated it will hold its third meaningful Parliament vote tomorrow, and this time the vote could decide the fate of both the Brexit process and the Prime Minister’s job.

Prime Minister Theresa May is under pressure to resign from her role, and some speculate that she may step down for the next phase of Brexit.

The Pound would surge in the event the bill somehow passes, but analysts expect its domestic support is still too low. Pound investors will instead look to see if the potential indicative votes process influences the direction of Brexit.

If not, the UK could be hurtling towards a no-deal Brexit on the 12th of April which could lead to significant Pound losses.

While Brexit developments dominate the Pound outlook, Euro investors are anticipating upcoming Eurozone confidence data in the coming days.

Tuesday’s German consumer confidence and French business confidence, as well as Wednesday’s French consumer confidence and Thursday’s overall Eurozone confidence figures, could all influence the Pound to Euro exchange rate in the coming sessions.
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