Global Trade Concerns Limit EUR/GBP Exchange Rate Support
While the fourth quarter French gross domestic product saw a surprise upward revision this was not enough to boost the Euro to Pound (EUR/GBP) exchange rate.
Even though the French economy remains on track for a solid year of growth demand for the Euro (EUR) remained somewhat muted at the start of the week.
As the EU continues to push for the US to make its exclusion from high steel and aluminium tariffs permanent worries over trade continue to cast a shadow over EUR exchange rates.
There are still concerns that the outbreak of a trade war between the US and China could weigh on the Eurozone economy, even if the bloc is exempt from any direct US action.
Pound Holds Ground Despite Weaker-Than-Forecast Mortgage Data
A weaker-than-forecast BBA loans for house purchase figure did not offer any particular support to the EUR/GBP exchange rate, meanwhile.
Although signs continue to point towards a softening of the UK housing market, thanks in part to lingering Brexit-based uncertainty, the appeal of the Pound (GBP) still picked up on Monday morning.
With Bank of England (BoE) policymakers offering distinctly hawkish signals the downside potential of GBP exchange rates appears limited, with a May interest rate hike largely priced into Sterling.
However, the Pound may struggle to return to its recent bullish run given the week’s relatively light data calendar.
Ahead of Wednesday’s UK net consumer credit figure the EUR/GBP exchange rate is forecast to see some additional volatility, though.
Euro Exchange Rate Rally Forecast on Stronger German Inflation
A rallying point is likely in store for the EUR/GBP exchange rate, however, as forecasts point towards a solid uptick in the German consumer price index data for March.
With inflation expected to have pushed higher on the year once again this could encourage increased confidence amongst European Central Bank (ECB) policymakers.
Although any policy action is unlikely to materialise soon the prospect of a more hawkish ECB outlook may give the Euro a solid boost across the board.
Developments in Italy remain a potential source of EUR exchange rate volatility, meanwhile, in spite of some progress towards the formation of a new government over the weekend.
As Paolo Pizzoli, senior economist at ING, noted:
‘The possibility of a 5SM – Centre right alliance has become the obvious starting option for the government formation guessing game. Reaching the same agreement for a new “political” government will require more willingness to compromise on both sides. Redline crossing would become almost inevitable, with a substantial risk of disappointing an electorate which had been attracted by strong calls. Notwithstanding some similarities in public order and migration themes, differences in programmes remain substantial on key economic issues: the so-called citizenship wage, one of the 5SM’s strongest campaign themes and the Centre-right’s flat tax idea look scarcely compatible.’
Unless the Italian political situation shows further signs of stabilising this is likely to put further pressure on the EUR/GBP exchange rate.