Euro Exchange Rates Boosted as EU Temporarily Spared from US Tariffs
News that the EU is temporarily spared from the Trump administration’s newly-imposed tariffs on steel and aluminium offered support to the Euro to Pound (EUR/GBP) exchange rate ahead of the weekend.
While the threat of a global trade war lingers the impact on the Eurozone economy now looks set to be a little more limited, improving the appeal of the Euro (EUR).
A weaker US Dollar (USD) also offered support to EUR exchange rates as worries over the outlook of the US economy mounted, encouraging investors to sell out of the lower-yielding asset in spite of market risk aversion.
This all encouraged the Euro to recover some of its lost ground on Friday morning, in spite of the disappointing nature of the previous day’s Eurozone manufacturing and services PMIs.
EU Summit Forecast to Yield No New Breakthrough Towards Final Brexit Agreement
Lingering jitters on the subject of Brexit have also benefitted the EUR/GBP exchange rate at this juncture, with demand for the Pound (GBP) easing once again.
GBP exchange rates may struggle to find any renewed support once the latest EU summit wraps up, as additional progress seems unlikely given the breakthrough draft treaty published earlier in the week.
As analysts at TDS noted:
‘We don’t expect sign-off on the 123-page withdrawal agreement, but leaders are likely to announce a “political agreement” finalising the content of the 5-page transition deal contained within. A positive move, but with “nothing agreed until everything is agreed” (legally, anyways), there remains a good deal of work ahead.’
With the issue of the Irish border remaining unresolved, and a significant roadblock to any final agreement, the Pound remains vulnerable to political worries for the foreseeable future.
Rising German Import Prices Forecast to Support EUR/GBP Exchange Rate
Monday’s German import price index data could offer the EUR/GBP exchange rate further support, providing that prices show fresh signs of acceleration.
Any evidence that inflationary pressure is still building within the Eurozone economy may give the European Central Bank (ECB) cause for confidence, increasing the odds of the central bank continuing its shift towards a more hawkish policy outlook.
A weakening in prices, however, would cast renewed doubt over the ECB’s ability to return to a monetary tightening bias in the coming months.
Unless the Eurozone demonstrates greater signs of resilience the appeal of the Euro is forecast to remain somewhat muted, especially as an air of domestic political uncertainty lingers.
Confidence in the Pound, meanwhile, could pick up on Monday morning in response to an uptick in the BBA loans for house purchase data.
So long as the UK housing market shows signs of strengthening this should give investors an incentive to favour Sterling once again, improving the domestic outlook.
However, after its weak run this week the EUR/GBP exchange rate looks primed to recover further ground.