Euro to Pound Exchange Rate Struggles to Advance Further Despite Broad Pound Weakness
Due to some weak German ecostats published on Monday morning, the Euro to Pound Sterling (EUR/GBP) exchange rate edged slightly lower when markets opened, though ultimately its movement since last week has been muted.
Weakness in both currencies meant EUR/GBP was only fluctuating tightly between lows of 0.8859 and highs of 0.8926 last week, and the pair ultimately edged higher from 0.8895 to 0.8895 throughout the week.
Underwhelming Eurozone data and resilient strength in the US Dollar (USD) has kept pressure on the Euro (EUR), while the Pound (GBP) has been undermined by persistent Brexit jitters despite the Bank of England (BoE) hiking UK interest rates last week.
This week, unless there are any Brexit developments, the Euro to Pound exchange rate is likely to be driven by German trade data and Friday’s slew of influential UK Gross Domestic Product (GDP) growth figures.
Euro (EUR) Exchange Rate Strength Limited as German Factory Data Falls Short
While not particularly influential, Monday morning’s German ecostats were underwhelming enough to weigh on market demand for the Euro and keep it from climbing further against Sterling, despite broad Brexit jitters.
German factory orders from June were published on Monday morning and were forecast to have contracted slightly from 2.6% to -0.4%.
However, the print unexpectedly contracted at a shockingly bad -4% – a figure that analysts believed showed concerns of US trade protectionism as having a notable downside impact on German businesses.
The factory data was so bad that one analyst, Marc Ostwald from ADM Investor Services, almost believed it was too bad to be true. He argued the data could be revised higher and that July’s print may see a bounce-back of sorts:
‘The fact that every single category fell – be that domestic, Eurozone & Non-Eurozone or Capital Goods, Consumer Durables or Intermediate Goods – looks to be highly anomalous, in so far as there is rarely ever a month where there is a “parallel shift” down, barring events such as the global financial crisis of 2008.’
July’s German construction PMI was disappointing too, falling from 53 to a stagnant 50.
The Euro’s weakness in response to the data was still limited though, as Brexit concerns ultimately continued to weigh on Sterling.
Pound (GBP) Exchange Rate Selloff Continues as Investors Fear ‘No Deal’ Brexit
Towards the end of last week, most of the Pound’s potential strength on a Bank of England (BoE) interest rate hike was limited by BoE Governor Mark Carney’s Brexit warnings.
Carney expressed concern that the chances of a ‘no deal’ Brexit were becoming ‘uncomfortably high’, and this was followed on Monday by concerning comments from UK Trade Secretary Liam Fox.
Fox stated over the weekend that the chances of Britain leaving the EU with ‘no deal’ was rising, and currently stood at around 60-40.
Market concerns rose that the Brexit process could end with ‘no deal’, often seen as a worst-case scenario outcome, and this put additional pressure on the Pound when markets opened on Monday.
Euro to Pound (EUR/GBP) Forecast: German Trade Results in Focus
As June’s German factory orders results were highly disappointing and weighed on the Euro on Monday, Euro to Pound (EUR/GBP) exchange rate investors are now anticipating Tuesday’s German trade results.
Trade balance data, as well as import and export data from June, will be published on Tuesday morning.
Exports are expected to have fallen due to concerns of US trade protectionism, but if the trade data is even worse than expected then trade jitters could worsen.
German industrial production from June and French trade data from June will be published on Tuesday too.
If this data doesn’t surprise investors much, the Euro to Pound (EUR/GBP) exchange rate is more likely to react to Brexit developments – at least until key UK Gross Domestic Product (GDP) growth data is published on Friday.