EUR/GBP Exchange Rate Softened Ahead of German Inflation Data
Despite weaker-than-expected Nationwide House Price Index figures the Pound (GBP) was trending higher against the Euro (EUR) on Thursday morning. With hopes low for the latest German Consumer Price Index the Euro to Pound Sterling (EUR/GBP) exchange rate was slumped in the region of 0.7778.
Greek Worries Fail to Weigh on Euro (EUR) Exchange Rate
Worries over the future of Greece’s bailout talks returned to the fore on Wednesday, as negotiations stalled and Prime Minister Alexis Tsipras issued a call for a new summit of European leaders. Nevertheless, ahead of the latest Federal Open Market Committee (FOMC) policy meeting the Euro to Pound Sterling (EUR/GBP) exchange rate continued to make strong gains in the region of 0.7779.
- Weaker German IFO sentiment survey prompted Euro softness
- Pound boosted by lowered odds of ‘Brexit’
- EUR/GBP strengthened as UK GDP slowed on the quarter
- Eurozone CPI forecast to demonstrate decline in inflation
Greek Worries & Poor German Business Sentiment Weighed on Euro (EUR) Exchange Rate
There was little particular incentive for investors to favour the Euro (EUR) at the start of the week. April’s German IFO Business Sentiment Survey proved generally disappointing, displaying a fresh loss of confidence within the Eurozone’s powerhouse economy. While the longer-term outlook of businesses showed some modest improvement, this was strongly contrasted by a weakening in the current assessment of conditions. With concerns over the latest round of Greek bailout talks showing signs of mounting once again, the Euro to Pound Sterling (EUR/GBP) exchange rate consequently slipped to a seven-week low of 0.7737.
This downtrend was exacerbated by the relative bullishness of the Pound (GBP), which was boosted across the board as recent ‘Brexit’ worries were re-evaluated. Markets appeared to take the opinion that Sterling had been oversold in recent weeks, prompting a strong rally after the odds of victory were indicated to have increasingly turned in the favour of the ‘Remain’ campaign.
Pound Sterling (GBP) Ended Bull Run after UK GDP Slowed
The single currency returned to stronger form on Wednesday morning, however, after the German GfK Consumer Confidence Survey for May bettered expectations. Rather than holding steady at 9.4 the index instead rose to 9.7, suggesting that the mood in the domestic economy had seen some improvement in the last month. As Germany’s Import Price Index for March also strengthened from -0.6% to 0.7% on the month there were increased hopes that the inflationary outlook of the currency union could yet prove stronger than feared.
Investors were not surprised to find that the UK’s GDP had slowed at the start of the year, slipping from 0.6% to 0.4% on the quarter. This dip in growth was largely anticipated after the marked economic uncertainty triggered by ‘Brexit’ worries and, as Howard Archer of IHS had noted:
‘Muted global growth and recent financial market volatility will also hamper UK economic activity in the near term at least.’
As a result the EUR/GBP exchange rate continued to trend higher, although its gains were muted by the fact that the UK’s economic growth had held steady on the year at 2.1%.
EUR/GBP Exchange Rate Forecast: Euro to Weaken on Declining Eurozone Inflation
Consumer Price Index reports for Germany and the Eurozone as a whole are likely to drive demand for the Euro in the remainder of the week. Forecasts point towards a renewed dip in inflationary pressure, a result which would seem to encourage the odds of the European Central Bank (ECB) having to expand its monetary loosening measures in the near future. Should either CPI surprise on the upside, however, the single currency is likely to strengthen further across the board.
While ‘Brexit’ rhetoric could continue well remain a prime influence on sentiment, the Pound may find some renewed support from Friday’s UK Mortgage Approvals figure. Should demand in the domestic housing market have remained strong, Sterling could regain some ground against rivals, although a weaker showing would compound the currency’s softness. With the UK GfK Consumer Confidence Survey expected to show a drop-off in sentiment, the EUR/GBP exchange rate could end the week on an uptrend.
Current EUR, GBP Exchange Rates
At the time of writing, the Euro to Pound Sterling (EUR/GBP) exchange rate was making gains in the region of 0.7764, while the Pound Sterling to Euro (GBP/EUR) pairing was trending lower around 1.2879.