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Can Euro Pound Exchange Rate Hold Gains Ahead of ECB Economic Bulletin?

Even in the absence of any fresh Eurozone data the mood towards the Euro remained generally positive, benefitting as market risk appetite diminished further.

As members of the Federal Reserve have taken a less hawkish tone on monetary policy in recent days the appeal of the single currency has improved, strengthening on the back of US Dollar weakness.

While President Emmanuel Macron’s government has come under some pressure, thanks to the high-profile resignation of ministers involved in investigations into alleged financial misconduct, this failed to particularly dent Euro demand.

However, if Macron’s government comes under greater pressure in the coming days the previous sense of optimism in the domestic outlook is likely to fade.

Volatility could be in store for the Euro Pound exchange rate in response to the European Central Bank’s (ECB) latest Economic Bulletin.

If policymakers took a more cautious view on the Eurozone economy, and monetary policy by extension, this could encourage investors to sell out of the Euro once again.

With any tapering of the quantitative easing program likely to remain off the table for some time to come the upside potential of the single currency could be somewhat limited.

On the other hand, any indications that the ECB is viewing the outlook of the domestic economy with greater optimism could see the EUR GBP exchange rate extending its recent gains further.

Political Jitters Limit Pound Sterling Upside Potential

The appeal of the Pound, meanwhile, weakened in anticipation of the Queen’s speech and official opening of parliament.

With the Conservatives yet to finalise a confidence and supply arrangement with the controversial Democratic Unionist Party (DUP) a sense of political instability is still hanging over Sterling.

As researchers at TDS noted:

‘Although parliament doesn’t vote on the speech for another week, which could be a bit more contentious given the lack of a deal yet with the DUP. And even once a deal is reached, the government will be left with an extremely narrow majority, and will need to have everyone present to avoid being voted down.’

If the minority government fails to secure the support of the DUP this could provoke further volatility for the Pound, exacerbating worries over the outlook of Brexit negotiations.

The EUR GBP exchange rate could also benefit from signs that the Conservatives are continuing to pursue a hard line of rhetoric on the matter of Brexit.

As forecasts point towards a dip in the CBI trends total orders figure for June the Pound could come under further pressure ahead of the weekend.

An upside surprise, however, may offer Sterling a temporary rallying point, even as concerns over the underlying health of the UK economy persist.

Current EUR GBP Interbank Exchange Rates

At the time of writing, the Euro Pound exchange rate was making gains in the region of 0.8841. Meanwhile, the Pound Euro exchange rate was slumped around 1.1306.