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Euro Makes Gains Against Pound, US Dollar as BoE and Fed Comments Turn Dovish

Even though centrist President Emmanuel Macron gained an absolute majority in Sunday’s French parliamentary election this was not enough to keep the Euro on a stronger footing for long.

Macron’s mandate is a little less resounding than markets had hoped, given that voter turnout hit a record low and unions are likely to strongly oppose his proposed labour reforms.

While the threat of political uncertainty in the Eurozone appears to be diminishing on the whole the mood towards the single currency remained somewhat muted.

Confidence in the underlying strength of the Eurozone economy is still limited, with domestic data proving rather mixed in recent days.

As analysts at Wells Fargo noted:

‘Sentiment indicators in the Eurozone are quite strong at present. The manufacturing PMI in the euro area rose to a multi-year high in May, and the Ifo index of German business sentiment stands at its highest level since reunification. That said, the actual state of the Eurozone economy does not appear to be as strong at present as the sentiment indicators would suggest. However, the expansion is becoming increasingly self-sustaining.’

The appeal of the Euro could weaken more markedly, however, if the European Central Bank’s (ECB) latest economic bulletin is more dovish in tone.

With policymakers looking unlikely to return to a monetary tightening bias in the foreseeable future EUR exchange rates may struggle to find any particular traction.

Dovish Carney Comments Boost EUR GBP Exchange Rate

Demand for the Pound slumped on Tuesday morning, thanks to the latest comments from Bank of England (BoE) Governor Mark Carney.

After last week’s unexpectedly split policy meeting Carney reiterated his view that now is not the time for interest rates to rise.

This dovish signal, although largely expected, sent Sterling trending lower across the board and offered the Euro Pound exchange a solid rallying point.

With formal Brexit talks finally underway the Pound is likely to remain biased to the downside, as any signs that talks are not progressing smoothly could weigh heavily on investor sentiment.

As long as the government continues to pursue a hard line of rhetoric the EUR GBP exchange rate could benefit, particularly if a sense of political uncertainty continues to hang over the UK economy.

Commentary from members of the Federal Open Market Committee (FOMC) have provoked volatility for the US Dollar in the early week, meanwhile.

While New York Fed President William Dudley took an optimistic view on inflation and the outlook of the economy the tone of Chicago Fed President Charles Evans was rather more dovish.

Evans’ note that there might not be another interest rate hike before the end of the year put the ‘Greenback’ on a bearish footing, encouraging investors to favour higher-yielding assets instead.

Even so, if the latest US housing market data offers evidence of stronger underlying growth in the world’s largest economy the US Dollar could find a rallying point.

Current EUR GBP USD Interbank Exchange Rates

At the time of writing, the Euro Pound exchange rate was making gains at 0.8788. Meanwhile, the Euro US Dollar exchange rate was trending modestly higher in the region of 1.1155.