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GBP to EUR Exchange Rate Struggles to Hold despite Weaker German Factory Orders

September 4, 2020 - Written by Frank Davies

Despite the Pound’s rally attempts this week, the British Pound to Euro (GBP/EUR) exchange rate has ultimately been unable to hold an advance. Yesterday saw the pair shed much of this week’s advances as investors pulled back on the Pound amid UK economic and Brexit concerns. Even though this week’s Eurozone data has been mixed, the Euro is still seeing resilient demand as the Eurozone’s outlook is strong overall.

Since opening this week at the level of 1.1214, GBP/EUR briefly dipped lower before spending much of the week attempting to secure further big gains. In fact, yesterday GBP/EUR touched on a high of 1.1277 – the best level for the pair in over 3 months, since May.

Since yesterday’s peak though, GBP/EUR has been tumbling down again. The pair shed essentially all of the week’s gain attempts, and at the time of writing on Friday is trending close to the week’s opening levels once more.

GBP Exchange Rates Struggle to Advance as Brexit Casts a Cloud on Outlook

The Pound has been attempting to rebound even further this week. This was despite a lack of fresh support for the British currency.

Instead, investors were largely buying the Pound due to weakness in rival currencies. For example, the Euro was being sold back from its best levels in profit-taking which the Pound benefitted from.

However, some analysts have noted that the Pound is unlikely to recover too far as uncertainty over the Brexit process keeps a murky cloud over the Pound’s outlook.

This was part of what caused the Pound to fall back from highs versus the Euro. Some weaker than expected UK services PMI data also weighed on Sterling in recent sessions.

According to Kit Juckes, Head of FX Strategy at Societe Generale, speaking about the Euro to Pound (EUR/GBP) rate:

‘This is a pair that ought to be trading somewhere in the low 90s really while we wait to find out what kind of Brexit we’re finally going to get and then see what kind of an economic recovery we get’

Some analysts think there is more room for the Pound to advance though, perceiving it as undervalued overall. Analysts at Jyske Bank said:

‘The UK is under pressure from all sides – Brexit, COVID-19 and structural capital outflows,

However, GBP remains undervalued, UK equities are heavily underweighted, and our main scenario is ultimately a limited, 11th-hour trade agreement with the EU.’

EUR Exchange Rates Weighed by Rival Rebounds and Factory Data

The Euro has been one of the most broadly appealing currencies in global markets for months now. This is because the Euro was perceived as having one of the best responses to the coronavirus pandemic among major economies.

However, amid a lack of fresh reasons to keep buying the Euro even higher, the shared currency recoiled back from a major high this week.

Earlier in the week, the Euro to US Dollar (EUR/USD) exchange rate hit its best levels in over two years. After touching this key high, markets took profit from the Euro’s strong levels and the shared currency shed ground.

The US Dollar (USD) is the Euro’s biggest rival. As the US Dollar continues to rebound strongly from its worst levels, the Euro remains vulnerable to this.

On top of rival strength though, this week’s Eurozone data has also been mixed and has limited the Euro’s ability to hold its ground.

Today’s German factory orders data showed that while the previous figure was revised to be even better, July’s figure came in at a weaker than expected 2.8%.

GBP/EUR Exchange Rate Forecast: European Central Bank (ECB) and GDP Stats Ahead

The Pound to Euro exchange rate may be ending this week on a more mixed note, as both currencies are weakened by rival strength and fresh economic uncertainty. This is leaving investors more anxiously awaiting next week’s major news.

Not only will major UK and Eurozone data be published, but the European Central Bank (ECB) will hold its September policy decision.

The bank’s tone will be watched especially closely, as key ECB policymakers have recently shown concern over the Euro’s strength. If the ECB ramps up warnings about the Euro potentially impacting monetary policy, the shared currency could tumble.

As for data, the Eurozone’s latest Q2 Gross Domestic Product (GDP) growth rate estimates will be published on Tuesday. German trade data and Eurozone employment change data will also be published.

Then, at the end of the week, UK production, trade and growth stats could also influence the Pound to Euro exchange rate.

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