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EUR to GBP Exchange Rate Remains Near Worst Levels despite Poor UK Retail Data

March 27, 2019 - Written by Toni Johnson

Despite a disappointing UK retail report today, the Euro to British Pound (EUR/GBP) exchange rate has seen relatively steady movement as investors digest the latest comments from European Central Bank (ECB) President Mario Draghi and await major news on how the Brexit process could change going forward.

While EUR/GBP put in some gains last week, climbing from the level of 0.8518 to 0.8556 throughout the week, demand for the Euro has been weaker since last week’s Eurozone manufacturing data fell well short of expectations. This has made it more difficult for EUR/GBP to hold its ground this week so far, despite Brexit uncertainties limiting market demand for the Pound.

A lack of consistency in the strength of recent Eurozone data, as well as comments from the ECB that there were rising downside risks in the Eurozone economic outlook, limited market demand for the Euro.

The Pound was unable to benefit from this either though, as investors are sceptical whether UK Parliament’s plans for ‘indicative votes’ will actually help the government find a solution that will help it pass Brexit through Parliament.

EUR Exchange Rates Remains Pressured by Eurozone Economic Concerns amid ECB Comments

Since last week, investors have been much more concerned about the Eurozone’s economic outlook as the bloc’s latest manufacturing PMI projections all fell well below expectations.

A little fresh optimism that Germany’s business confidence was rising at the beginning of this week has since been offset by other underwhelming Eurozone data.

Yesterday’s German consumer confidence and French business confidence stats both fell short, and today’s French consumer confidence data simply met expectations and had no notable impact on the Euro.

Euro investors turned their attentions towards a speech from European Central Bank (ECB) President Mario Draghi today, whose comments also painted a fairly mixed picture on the Eurozone outlook.

He expressed concern about the downside risks facing the bloc, but generally was confident that the Eurozone’s growth would pick up speed so long as the ECB was prepared to stimulate the economy.

Draghi’s comments that the ECB could look into softening the impact of negative rates also gave the Euro a little support and prevented the currency from seeing further losses.

Draghi said:

‘If necessary, we need to reflect on possible measures that can preserve the favorable implications of negative rates for the economy, while mitigating the side effects, if any,

That said, low bank profitability is not an inevitable consequence of negative rates.’

GBP Exchange Rate Strength Limited amid Concerning Retail Outlook

Investors are hesitant to make big moves on the Pound ahead of upcoming ‘indicative votes’ on Brexit, but the British currency did see additional pressure following the publication of CBI’s latest distributive trades data.

The Confederation of British Industry (CBI) published its March distributive trades results on Wednesday morning, and the figure came in with a shocking contraction of -18.

The print was forecast to edge higher from 0 to 5, so the surprising contraction worsened market concerns about the health of Britain’s retail sector. According to the report, UK retail sales were falling at the worst pace in 17 months.

Anna Leach, Head of Economic Intelligence at CBI, said:

‘The pain currently being felt on the High Street is yet another reason why it is so vitally important politicians agree a deal in Parliament that is acceptable to the EU and protects our economy. No-deal must be averted at all costs’

Ultimately though, investors were hesitant to sell Sterling much as they highly anticipated upcoming ‘indicative votes’ on Brexit.

EUR/GBP Exchange Rate Forecast: Eurozone Data and Brexit Developments in Focus

Upcoming Eurozone data and Brexit developments could cause some major movement in the Euro to Pound exchange rate if they surprise investors.

While EUR/GBP is currently seeing relatively tight movement, the Euro would see stronger demand if tomorrow’s Eurozone confidence stats or German inflation figures impress markets.

Pound investors, on the other hand, are highly anticipating a set of ‘indicative votes’ to be held in UK Parliament, which could even influence the direction the Brexit process takes next.

If Parliament pushes the Brexit process in a softer direction, it could bolster hopes that a soft Brexit is becoming more likely or that the popularity of the government’s Brexit plan could rise.

On the other hand, a lack of developments is likely to leave investors anxious about the possibility of a no-deal Brexit in just over two weeks, and this would keep pressure on the Pound.
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