Pound Euro Exchange Rate News: GBP/EUR Stabilises as ECB Warns of ‘Prominent’ Risks to Eurozone

May 29, 2019 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Stabilises as ECB Warns of ‘Prominent’ Risks to Eurozone

Euro (EUR) Exchange Rates Muted Following ECB Stability Review

The Euro (EUR) was stuck trading sideways against the Pound (GBP) and most of its other peers on Wednesday morning, following the publication of the European Central Bank’s (ECB) financial stability review.

In its latest review the ECB warned that that the financial stability of the Eurozone could be undermined by slowing global economic growth.

The ECB also highlighted potential risks from within the Eurozone, with the bank appearing to single out Italy as it spoke of ‘country-specific debt sustainability concerns’, likely referring to Rome’s clashes with Brussels over its desire to run a larger budget deficit.

Furthermore the review warned of the potential shock to the Eurozone that could be caused by a no-deal Brexit, with could substantially impact those countries with a close trade relationship with the UK.

The ECB’s Financial Stability Review read:

‘There remain tail macro-financial risks whereby a no-deal Brexit interacts with other global shocks, in an environment where risks to the euro area growth outlook are tilted to the downside.

‘If such a scenario occurs, the impact would likely be concentrated on particular countries, such as those with significant ties to the UK.’

Adding to the pressure on the Euro were some accompanying comments from ECB Governing Council member Olli Rehn, who suggested that the ‘first rise in interest rates is now further away than it was a few months ago’ adding to speculation the next hike could be mid-2020 at the earliest.

Pound (GBP) Exchange Rates Flat as UK Political Uncertainty Dampens Sentiment

Meanwhile the Pound (GBP) struggled to capitalise on the Euro’s (EUR) muted performance on Wednesday as Sterling sentiment remained pressured by political uncertainty in the UK.

This comes as the race to replace Theresa May as Prime Minister and leader of the Conservative party begins to heat up, with 11 Tory politicians so far having thrown their hats in the ring.

With the next PM set to shape the final months of Brexit negotiations before the UK is scheduled to leave in October, the race is unsurprisingly the centre of attention for GBP investors at the moment.

However, so far no avowedly pro-EU candidates have come forward, with the current line-up split between those pushing for a no-deal Brexit and those who are committed to leaving the EU, but only with a deal.

GBP/EUR Exchange Rate Forecast: Rebound in German Retail Sales to Lift the Euro?

Looking ahead to the remainder of the week, the Pound Euro (GBP/EUR) exchange rate may come under pressure in the tail end of the session, with the release of Germany’s latest retail sales figures.

Economists forecast that German retail sales will have shown modest growth in April, rebounding from a slight contraction the previous month and potentially lending some support to the single currency.

Meanwhile, Sterling sentiment is likely to remain highly sensitive to political developments in the UK, with the Pound likely to remain subdued as markets speculate on the potential outcome of the leadership contest.

Also potentially influencing GBP exchange rates will also be a speech by Bank of England (BoE) policymaker Dave Ramsden, with the Pound possibly strengthening should he drop any hints regarding a suspected rate hike from the BoE later this year.

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TAGS: Euro Pound Forecasts