EUR to GBP Exchange Rate Continues to Test Highs despite Weak Eurozone Confidence Stats

June 25, 2019 - Written by James Fuller

STORY LINK EUR to GBP Exchange Rate Continues to Test Highs despite Weak Eurozone Confidence Stats

Despite persistent signs of weakness in Eurozone economic activity since last week’s dovish shift from European Central Bank (ECB) President Mario Draghi, the Euro to British Pound (EUR/GBP) exchange rate has been able to avoid major losses this week so far. The Euro is benefitting from weakness in rivals as well as the dovish shift from the Federal Reserve.

EUR/GBP spent most of last week fluctuating within a relatively narrow region after opening at the level of 0.8925 – though the pair did touch on a post-January high of 0.8969 briefly. EUR/GBP ultimately closed the week higher due to Pound weakness, near the level of 0.8940.

Since then, EUR/GBP has fluctuated but at the time of writing on Tuesday afternoon was trending a little higher near the level of 0.8949.

EUR Exchange Rates Benefit from Weakness in Rivals despite Mixed Eurozone Data

Investors bought the Euro this afternoon, following a steep dip this morning, as despite the latest disappointing Eurozone data the shared currency remained more appealing than some major rivals.

The Pound remained unappealing on the back of persisting UK political and economic jitters, while the US Dollar (USD) continued to be sold on disappointing US data and rising Federal Reserve interest rate cut bets.

Following Monday’s disappointing US manufacturing data, today’s US manufacturing consumer confidence and new home sales stats also all fell short of expectations.

They deepened market concerns about how much the Fed may need to ease US monetary policy, and as the Euro is the US Dollar’s biggest currency rival the shared currency has benefitted from this news.

According to Rainer Guntermann, Strategist from Commerzbank, both the Fed and the European Central Bank (ECB) are likely to remain dovish:

‘The market is at least pricing in a 25 basis point rate cut, and will be keeping an eye on a possible 50 basis point cut. It’s not our base case, but if Powell gives a hint that this will happen, that should give bonds a further boost, especially in the short end,

In any case, subdued growth suggests that both (European and US) central banks should run with an easing bias.’

However, as the Federal Reserve was more hawkish until earlier in the year, and the ECB had been cautious for quite some time already, the shift in the Fed is a bigger shock to investors and this is keeping the Euro more appealing in comparison.

As a result, Euro investors were largely unfazed by this morning’s weaker than expected French business confidence report.

GBP Exchange Rates Fail to Sustain Recovery as UK Retail Data Falls Short

Investors had been buying the Pound this morning, in a rebound from the British currency’s recent cheapest levels. However, the currency was unable to sustain much of a recovery due to a lack of solid support.

The Pound remains broadly unappealing overall, as there is no clarity over how Brexit will unfold before the current deadline of October, and UK Prime Minister Theresa May looks to be succeeded by a leader who would embrace a harder or no-deal Brexit.

Brexiteer Boris Johnson remains the clear frontrunner of the Conservative Party leadership election, which will run into the second half of July.

Political news is keeping pressure on the Pound, and the latest UK economic data certainly isn’t helping.

The Confederation of British Industry’s (CBI) June distributive trades report showed retail activity with a surprisingly deep contraction of -42, rather than improving from -27 to -10 as expected.

EUR/GBP Exchange Rate Forecast: Eurozone Ecostats Increasingly Take Focus

The Euro to Pound exchange rate’s movement has been driven largely by political news and movement in rivals this week so far, as the week’s Eurozone and UK data has been fairly low-influence.

As a result, with the week’s most influential Eurozone data still on the way, EUR/GBP could see more notable shifts in direction in the coming sessions.

Tomorrow will see the publication of the latest consumer confidence data from Germany and France, as well as French jobseekers data.

If this data disappoints investors as well, the Euro is less likely to be able to keep holding its ground as European Central Bank (ECB) interest rate cut bets would continue to rise.

Data due for publication on Thursday and Friday is likely to be even more influential, with Eurozone confidence and German inflation on Thursday, followed by overall Eurozone inflation stats on Friday.

Any surprising developments in UK politics would also be likely to drive the Euro to Pound (EUR/GBP) exchange rate over the coming sessions.

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TAGS: Euro Pound Forecasts