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EUR to GBP Exchange Rate Advance Past Two Month Best Limited amid Fresh Italian Political Jitters

May 14, 2019 - Written by Frank Davies

A combination of factors limited market demand for the Euro yesterday, making it more difficult for the Euro to British Pound (EUR/GBP) exchange rate to keep climbing past its recent two month highs. The pair did ultimately remain near its best levels though, due to Brexit jitters and mixed UK data weighing on the Pound.

Last week was an impressive performance for EUR/GBP, as the pair opened the week at the level of 0.8505 and after briefly touching a yearly low of 0.8492 surged over a pence to close the week closer to the level of 0.8643.

EUR/GBP has continued to climb since markets opened this week thanks to hopes for a more resilient Eurozone economic outlook, as well as broad weakness in Sterling.

At the time of writing on Tuesday afternoon EUR/GBP was trending close to a two month high of 0.8688.

EUR Exchange Rates Fails to Capitalise on Sterling Weakness as Italian Political Jitters Return

Demand for the Euro has been a little sturdier in recent weeks, as investors become more hopeful that the Eurozone’s economy has been resilient amid the global economic slowdown.

Hopes for resilience in Germany and the Eurozone overall have generally risen this week and have helped the Euro to hold its gains.

This was thanks to this morning’s German wholesale prices data from April, which beat expectations by coming in at 0.6% month-on-month and 2.1% year-on-year.

German inflation simply met expectations however, and while Eurozone industrial production beat expectations slightly year-on-year it still came in with a contraction of -0.6%.

On top of this, ZEW’s latest German and Eurozone economic sentiment surveys from May both fell short of market expectations due to concerns about the economy being impacted by ongoing global trade tensions.

As well as mixed Eurozone data, the Euro’s appeal was weighed by a slightly stronger US Dollar (USD) today, as the US Dollar and Euro have a negative correlation.

The latest Eurozone political developments only put further pressure on the Euro, as Italian Deputy Prime Minister Matteo Salvini indicated that Italy may still break EU budget rules if necessary.

Concerns about political instability in Italy having an impact on the Eurozone have been a recurring theme for Euro investors over the past year.

GBP Exchange Rates Unappealing as Brexit Talks Increasingly Expected to Fail

A little brief hope for cross-party Brexit talks from yesterday was extinguished today, and investors continued to sell the Pound on speculation that talks will soon fall through and lead to longer-term uncertainty for the Brexit outlook.

Some MPs from the ruling Conservative Party wrote to UK Prime Minister Theresa May and asked for her to ditch cross-party Brexit talks due to criticism of the opposition Labour Party’s stance on keeping Britain in a customs union.

This worsened concerns that there would be months more uncertainty facing Britain’s economy regarding Brexit.

The latest UK job market data did little to make the Pound more appealing either. While Britain’s unemployment rate beat expectations, wage price data fell short.

EUR/GBP Exchange Rate Forecast: German Growth Rate Report in Focus

Unless Italian political jitters continue to flare up, the Euro to Pound exchange rate is most likely to be influenced by Eurozone data tomorrow.

Germany’s Q1 Gross Domestic Product (GDP) growth rate could be one of this week’s most influential datasets, as it will give investors a better idea of how resilient Germany’s economy was earlier in the year amid the slowdown in global growth.

If German growth falls short of expectations, EUR/GBP is likely to tumble as Eurozone growth concerns would worsen.

The opposite is also true though. Strong German growth data would make it easier for EUR/GBP to extend its two month best levels and may even boost European Central Bank (ECB) interest rate hike bets.

Other data to watch out for tomorrow includes French inflation rate and Eurozone growth rate data.

Euro to Pound exchange rate investors will of course remain focused on potential developments in UK politics and Brexit.
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