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Euro Falls Against Pound, US Dollar as Global Political Tensions Rise

An unexpectedly sharp contraction in French industrial production left the Euro on a bearish trend, undermining confidence in the health of the wider Eurozone economy.

While the -1.1% contraction was not enough to entirely reverse the previous month’s growth of 1.9% this still signalled the persistent troubles of the French industrial sector.

As French industry has struggled to clock two consecutive months of growth over the last year the underlying strength of the sector appears questionable.

With domestic confidence in centrist President Emmanuel Macron already fading France’s economy outlook remains muted, putting additional downside pressure on EUR exchange rates.

Geopolitical Tensions Continue to Benefit Safe-Haven US Dollar

The continuing escalation of tensions between the US and North Korea also weighed heavily on the single currency, as investors piled back into the safe-haven US Dollar thanks to a significant decline in risk appetite.

Fears that the two states could be edging closer to an armed conflict have buoyed the ‘Greenback’ against many of its rivals, although it has not fared quite as well as either the Japanese Yen or the Swiss Franc.

Even so, the Euro US Dollar exchange rate could find a rallying point ahead of the weekend if the latest US consumer price index report proves disappointing.

Although CPI is not the Federal Reserve’s preferred measure of inflation a weaker showing here could still diminish the likelihood of policymakers achieving a third interest rate hike before the end of the year.

On the other hand, any increase in inflationary pressure is likely to leave the Euro on a pronounced downtrend, especially in the absence of any easing in global tensions.

Widening UK Trade Deficit Failed to Boost EUR GBP Exchange Rate

Confidence in the Pound, meanwhile, remained muted as a result of a surprise widening of the UK visible trade deficit.

As the deficit widened from -11.3 billion to -12.7 billion this highlighted the continued vulnerability of the UK economy.

The latest raft of industrial and manufacturing production data also proved less than encouraging, failing to show any significant improvement in the wake of May’s contraction in output.

As James Smith, economist at ING, noted:

‘This is particularly concerning when you consider the backdrop of a 13% post-Brexit fall in the Pound and the significant improvement in global growth prospects (particularly in Europe, a key trading partner for the UK). Whilst these developments appear to have boosted sentiment amongst manufacturing firms according to recent PMIs, we aren’t seeing this being translated into the official data.’

Given the recent resurgence in Brexit-based uncertainty and fears that the UK could face a hard divorce from the EU this weaker data did little to improve the appeal of the Pound.

Even so, this was not enough to set the Euro Pound exchange rate on an uptrend, given the relative weakness of the single currency.

However, with no fresh UK data set for release ahead of the weekend the Pound may struggle to hold onto its stronger footing for long.

Current EUR GBP USD Interbank Exchange Rates

At the time of writing, the Euro US Dollar exchange rate remained slumped in the region of 1.1709. Meanwhile, the Euro Pound exchange rate was trending lower around 0.9011.