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EUR to GBP Exchange Rate Recovers on Hopes of Eurozone Economic Rebound

May 7, 2019 - Written by James Fuller

While not a significant recovery due to lingering Brexit hopes supporting the Pound, the Euro to British Pound (EUR/GBP) exchange rate has rebounded slightly from its worst levels this week so far. The Euro has been supported by fresh signs of strength in Eurozone economic data, buts its potential for gains is limited by some lingering weakness as well as strength in major rivals like the US Dollar (USD).

After opening last week at the level of 0.8636, EUR/GBP spent last week tumbling. Overall, the pair shed over a pence throughout the week and closed the week near the level of 0.8507. After briefly dipping even lower on Monday morning to a low of 0.8475, EUR/GBP rebounded and at the time of writing was trending closer to the level of 0.8567.

Demand for the Euro has been supported by this week’s Eurozone data so far, but its gains have been limited compared to other Pound rivals. This is because investors remain anxious about last week’s poor Eurozone manufacturing data, as well as fresh weak German production data.

EUR Exchange Rates Supported by Eurozone PMI Results

Last week, investors found the Euro unappealing despite many key Eurozone ecostats such as growth and inflation results printing above expectations.

This was because the latest Eurozone manufacturing data continued to indicate that the bloc’s factory activity was still notably underperforming, leaving investors anxious about the possibility that the bloc was still being negatively impacted by slowing global growth.

Today’s data continued to paint a mixed picture for the bloc as well, with German factory orders from March, and Germany’s April construction PMI, both printing lower than forecasters expected.

Most of the Euro’s recovery this week so far has been supported by yesterday’s Eurozone services PMI results, which beat expectations in many key prints and indicated that the bloc’s economy could be rebounding in areas besides manufacturing.

On top of this, Eurozone officials have forecasted that the bloc’s economy will rebound more stronger in 2020, and employment will fall further. According to European Commission Vice President Valdis Dombrovskis:

‘On the external side, these include further escalation of trade conflicts and weakness in emerging markets, in particular China. In Europe, we should stay alert to a possible 'no-deal Brexit', political uncertainty and a possible return of the sovereign-bank loop,’

However, these comments did worsen concerns from investors that it may take longer than previously hoped for the Eurozone economy to rebound. Overall, the Euro’s appeal is limited.

GBP Exchange Rates Slip from Best Levels as UK Political Uncertainty Flares Up

For most of the past week, investors piled into the Pound on fresh signs that the UK government’s cross-party Brexit talks could lead to a softer Brexit deal being agreed.

While there was no solid confirmation of progress, a more optimistic tone from officials last week and continued signs of optimism this week made investors more willing to hope for a softer Brexit.

However, the Pound has struggled to hold its best levels too, as other uncertainties and concerns persist.

Not only do many analysts still believe that a major Brexit breakthrough is still unlikely for months, but fresh concerns about the future of the UK government are weighing on the Pound this week so far.

UK Prime Minister Theresa May is facing fresh pressure to resign from her role, and her party is expected to perform poorly in upcoming European Elections. According to Marc-Andre Fongern from MAF Global Forex:

‘Currently Theresa May is walking on thin ice as the latest reports indicate a revolt against her could take place. MPs (Members of Parliament) are probably not satisfied with cross-party talks so far. Therefore the Pound is being dragged down as another dose of uncertainty hits the market,’

EUR/GBP Exchange Rate Forecast: More German Factory Data Ahead

Most recent Eurozone factory data, especially factory data from Germany, has disappointed investors and has worsened concerns that the Eurozone economy is still suffering from the global economic slowdown.

As a result, investors remain anxious about upcoming German factory data, and there are still multiple datasets on the way this week that could influence Germany’s economic outlook if they surprise.

Tomorrow’s most important dataset for EUR/GBP investors will be Germany’s March industrial production report. It’s expected to show a contraction of -0.5%, but if it impresses markets then investors may be more willing to buy the Euro.

It will be followed on Friday by Germany’s March trade balance report, as well as industrial production data from France.

On top of the factory data, the Euro may also be influenced by a speech from European Central Bank (ECB) President Mario Draghi tomorrow.

The Pound, on the other hand, will remain sensitive to potential Brexit developments.

If there are any further signs that political uncertainty could cause Brexit negotiations to fail, the Euro to Pound exchange rate will see a stronger recovery.
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