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Euro Pound Exchange Rate Fails to Capitalise as UK Pay Falls

As the first round of voting in the French presidential election draws closer the Euro has come under increased pressure.

While centrist candidate Emmanuel Macron remains the favourite investors are still jittery over the prospect of a fresh populist upset.

As Nick Verdi, Senior FX Strategist at Standard Chartered, noted:

‘A stronger-than-expected showing by Le Pen in the first round or even fast-rising far-left candidate Jean-Luc Melenchon could rattle euro-area risk assets and undermine the EUR.’

Political worries are thus likely to keep EUR exchange rates on a weaker footing in the near term.

Although markets expect to see no change in the finalised raft of Eurozone consumer price index data this could still provoke volatility for the single currency.

Fresh confirmation that German inflation slowed sharply in March would reduce the pressure on the European Central Bank (ECB) to consider moving away from its current neutral policy bias.

Signs of weakening momentum elsewhere in the currency bloc could also put downside pressure on the Euro, with investors unlikely to find any fresh cause for confidence ahead of the weekend.

Market reaction to the latest UK inflation data proved rather volatile, with the Euro Pound exchange rate’s initial surge soon reversed to leave the pairing on a downtrend.

Investors were somewhat disappointed to find that inflationary pressure had held steady on the year at 2.3%, with the monthly gauge showing some slowing.

This undermined calls for the Bank of England (BoE) to return to a hawkish bias in the near future, given that policymakers have pledged to allow some overshot of its 2% inflation target as the weakness of the Pound feeds through into the economy.

Confidence in the outlook of the domestic economy was knocked further by news that growth in average weekly earnings had softened to 2.2% in the three months to February.

While this signalled that real pay growth had fallen, putting greater pressure on consumers, this weak showing was not enough to boost the EUR GBP exchange rate during Wednesday’s European session.

However, Sterling could come under greater pressure if the RICS house price balance points towards further loss of momentum within the housing market.

If signs continue to indicate that domestic sentiment is weakening then the Pound is likely to return to its bearish trend, as much of the economy’s post-referendum resilience has been attributable to strong levels of consumer spending.

As Brexit-based uncertainty is set to worsen in the months to come the EUR GBP exchange rate could see continued support, barring any significant upset in the French elections.

Current EUR GBP Interbank Exchange Rates

At the time of writing, the Euro Pound exchange rate was on a narrow downtrend at 0.84. Meanwhile, the Pound Euro exchange rate was trending in the region of 1.17.