Euro to Pound Exchange Rate Appealing despite Expectations for Continuity in Dovish ECB
Continued weakness in the Pound (GBP) has made it easier for the Euro to Pound Sterling (EUR/GBP) exchange rate to edge towards its best levels once again, even after the latest European Central Bank (ECB) news could mean more dovishness is ahead for the bank.
Could EUR/GBP be in for yet another week of gains? While EUR/GBP briefly tumbled from the week’s opening levels of 0.8955 earlier in the week, the pair has already seen a strong rebound.
EUR/GBP continues to trend gradually higher in recent weeks. While EUR/GBP has been unable to hold last week’s post-January high, it has been trending relatively close to those highs today.
At the time of writing, EUR/GBP was trending near the level of 0.8980.
Investors firmed in the Euro (EUR) this morning, despite news that the relatively dovish Christine Lagarde had been chosen to succeed Mario Draghi as the European Central Bank (ECB) President later this year.
Euro (EUR) Exchange Rates Firm on Data and European Central Bank (ECB) Speculation
Despite concerns about the Eurozone’s economic outlook and the possibility that the ECB would remain dovish going forward, the Euro was able to put in some gains against a broadly weak Pound today.
As Sterling was weakened by UK data, the Euro did find a little domestic support today as the Eurozone’s final June services and composite PMI results were a little stronger than expected.
Due partially to stronger services sector activity in Germany, the overall Eurozone data beat expectations. It slightly offset economic concerns following Monday’s weaker than expected Eurozone manufacturing stats.
This was part of why EUR/GBP tested levels close to its best levels in months, despite International Monetary Fund (IMF) Boss Christine Lagarde being picked as the next European Central Bank (ECB) President.
Lagarde would be expected to continue the cautious and dovish outlook for monetary policy that Draghi favoured, rather than taking a more hawkish stance.
There is also concern in markets about Lagarde’s credibility, as she has not held office in a Central Bank before.
However, there is market optimism about her nomination as well, amid speculation that she could do a better job of pressuring leaders for reforms and fiscal policy.
Pound (GBP) Exchange Rates Slump as UK Economy Predicted to have Shrank in Q2
Much of the Euro to Pound exchange rate’s resilience today has also been due to fresh weakness in the Pound.
Sterling has already been under notable pressure in recent sessions, amid fears that Britain’s next Prime Minister could lead the nation into a no-deal Brexit.
Concerns about how Brexit had negatively impacted Britain’s economic activity have only worsened following this week’s June PMIs from Markit however.
Manufacturing and construction stats saw deeper than expected contractions earlier in the week, and today’s key services PMI came in at a near-stagnant 50.2 rather than the expected 51.
The worse than expected data from Britain’s biggest economic sector indicated that British economic activity had seen one of its worst months since the financial crisis.
Some analysts even began to speculate that Britain’s economy may have shrunk in Q2 2019. Capital Economics predicts that Britain’s economy shrank by -0.2% in Q2. According to analysts from Capital Economics:
‘A shift in activity to before the Brexit date [29th March] accounts for some of the weakness. But the fact the surveys have not picked up towards the end of the quarter, and global manufacturing is slowing, means the risk is that the economy fails to bounce back in Q3.’
Euro to Pound (EUR/GBP) Exchange Rate Investors Await Eurozone Retail Data
Despite the Euro’s gains versus the Pound today, demand for the shared currency is still limited and much of the pair’s gains have been due to the Pound’s weakness rather than Euro strength.
Euro investors are still uncertain as to when the European Central Bank (ECB) could ease monetary policy next. As a result, investors are highly anticipating further key Eurozone data.
Tomorrow will see the publication of the Eurozone’s May retail sales results, which could be one of the most influential reports of the week.
Eurozone retail sales are expected to have seen a rebound from -0.4% to 0.3% in May, with the yearly figure forecast to have risen from 1.5% to 1.6%.
If the Eurozone’s retail sales data beats expectations, it could offset bets that the ECB could cut interest rates as soon as this month. Notably weak data would cause July interest rate cut bets to rise though.
With the Pound unappealing on speculation that Britain may be in for further months of economic weakness on Brexit jitters, Euro to Pound (EUR/GBP) exchange rate investors will also be focused on potential developments in UK politics.