The mood towards the Euro remained muted as the initial relief rally that followed Emmanuel Macron’s victory in the French presidential election dissipated further.
German’s latest raft trade and production data failed to impress markets, even though the Eurozone’s powerhouse economy bettered forecasts.
As Carsten Brzeski, Chief Economist at ING, noted:
‘Evidence is increasing that industrial production and investments are finally catching up with the rest of the economy. It is too early to celebrate the long-awaited and often never materialised pick-up in investments. However, if it comes, the current positive cycle of the German economy would be extended once again, even though structural reforms are still missing.’
While Germany continues to demonstrate robust economic health, though, concerns remain over the resilience of other members of the currency union.
Despite Macron’s strong win in the presidential election it is still unclear whether he can deliver on his campaign promises, with his En Marche! movement yet to be tested in the parliamentary elections.
If signs point towards the new president struggling to form a working majority then EUR exchange rates could come under further pressure.
Comments from European Central Bank (ECB) President Mario Draghi could also weigh on the single currency, with the policymaker likely to maintain a relatively dovish outlook on monetary policy.
Although the British Retail Consortium (BRC) like-for-like sales report showed an unexpectedly strong 5.6% uptick on the year in April the Pound struggled to particularly capitalise on the data.
Jitters over the issue of Brexit continue to limit the upside potential of Sterling, with rhetoric on both sides of the Channel remaining hard as tensions mount.
The Euro Pound exchange rate could find a rallying point, however, on the back of Thursday’s Bank of England (BoE) policy meeting.
So long as the Monetary Policy Committee (MPC) maintains a more cautious view on interest rates and the domestic economy then the appeal of the Pound is set to diminish.
If the accompanying quarterly Inflation Report also indicates that price pressures are likely to accelerate over the coming months investors could be encouraged to sell out of Sterling once again.
A weaker NIESR gross domestic product estimate may equally dent GBP exchange rates.
While the odds of a June interest rate hike from the Federal Reserve have climbed to a state of near-certainty this leaves the US Dollar vulnerable to downside pressure.
Even so, if April’s monthly budget statement shows a narrowing of the deficit then the ‘Greenback’ could extend its recent bullish run further.
On the other hand, any disappointment is likely to give the Euro US Dollar exchange rate a boost, although even a severe downside surprise would fail to discourage bets of an imminent Fed rate hike.
Comments from members of the Federal Open Market Committee (FOMC) could also provoke US Dollar jitters, particularly if they point towards sentiment amongst policymakers being more divided.
Current EUR GBP USD Interbank Exchange Rates
At the time of writing, the Euro Pound exchange rate was trending narrowly at 0.84. Meanwhile, the Euro US Dollar exchange rate was slumped at 1.09.