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EUR Retains Gains against GBP, ZEW Results Weaken EUR USD

  • EUR GBP exchange rate bullish – Inflation data weakens Pound
  • ZEW surveys undermine EUR USD – Sentiment crashes in the Eurozone
  • EUR USD falls on strong US data – Housing starts show bullish growth in US
  • EUR, GBP, USD Forecast – UK data to move exchange rates today

Poor confidence stats failed to dent the Euro against the Pound, although they did tip the common currency into a bearish decline against the US Dollar.

Eurozone Sentiment Collapses, Euro Feels the Pressure

What began as a bullish charge ended the day on significantly weaker terms for the Euro yesterday. Demand for the common currency slowly declined from a strong starting position, with the Euro racking up losses of -0.3% against the Swiss Franc (CHF), -0.5% against the Japanese Yen (JPY) and -0.6% against the US Dollar (USD). The Euro managed to make strong gains against several of the weaker currencies, however, including an advance of 0.5% against the Pound (GBP).

The Euro was undermined by the results of the latest ZEW sentiment surveys, which showed the impact that the UK’s Brexit vote had had upon confidence. Forecast to slide from 54.5 to 51.8, the German current situation index instead dropped to 49.8. Economic sentiment results were even worse, with the German reading falling from 19.2 to -6.8, against forecasts of a smaller drop to 9, while outlook for the Eurozone tumbled from 20.2 to -14.7.

Berenberg, the German bank, believes this data shows the markets are not reacting strongly enough to the ‘Brexit’ vote, with economist Florian Hense explaining;

The first reading of the economy is somewhat in contrast to market developments. When the ECB’s governing council convenes on Thursday for its monetary policy meeting, they will acknowledge that market moves so far have been relatively orderly and sovereign bond yields, particularly in the Eurozone periphery, signal limited contagion risk. But today’s soft data will be some cause for concern, supporting our view that Draghi’s press conference will take a dovish tone.’

Pound Holds Losses on Consumer Price Index Strength

GBP Pound exchange rate

Contrary to normal practice, the Pound weakened yesterday after the release of better-than-expected UK inflation data. The consumer price index grew 0.5% year-on-year in June, beating forecasts of 0.4% price growth, while the non-core index growth accelerated from 1.2% to 1.4% instead of 1.3%. With inflation expected to shoot up thanks to the ‘Brexit’-devalued Pound, the fact that price growth was stronger in June suggests next month’s inevitable rise could be even more severe than first thought.

Markit Chief Economist Chris Williamson explained;

The latest increase was one of the largest seen since late-2014, and likely to be the start of a rising trend in prices as costs march higher in response to the recent slump in Sterling.

Safe-Haven Demand Keeps US Dollar Firm

The US Dollar was enjoying a respite from recent losses yesterday after the International Monetary Fund shaved its growth forecasts for 2016 and 2017. This boosted demand for safer-assets, which was already high due to crashing stock markets, slumping commodities and a weakened Australian Dollar (AUD).

The fact that the IMF only marginally reduced growth forecasts was considered good news for the US. Global growth fears have been one of the factors dissuading the Federal Reserve from raising interest rates. A small reduction will therefore bode well for US monetary policy tightening, suggesting that ‘Brexit’ shockwaves will be largely confined to the UK economy.

US data was also supportive, with the number of housing starts in June growing 4.8% after the previous month’s -1.7% decline. Analysts had expected growth of just 0.2% last month. The number of building permits issued increased 1.5%, compared to the 1.2% forecast.

Euro Pound, Euro US Dollar Exchange Rate Forecast; UK Data to Dominate Quiet Economic Calendar

Data from the Eurozone and the US is fairly sparse on the calendar today. The former is set to release German producer prices and Eurozone and Italian current account updates. The US will publish MBA Mortgage Applications and crude oil inventory figures.

The UK has a sizeable amount of data set for release, with the claimant count and jobless claims change figures for June followed by May’s average weekly earnings, ILE Unemployment Rate and employment change figure. These all refer to pre-Brexit Britain, so the impact of the data could be relatively muted.

EUR, GBP, USD Conversion Rates

The Euro Pound (EUR GBP) exchange rate was trading in the region of 0.8381 during yesterday’s European session, while the Pound Euro (GBP EUR) exchange rate traded in the region of 1.1930.

The Euro US Dollar (EUR USD) exchange rate trended in the region of 1.1011 yesterday, while the US Dollar Euro (USD EUR) exchange rate trended around 0.9079.