Euro Pound Sterling (EUR/GBP) Exchange Rate Slips With Easing UK Political Worries
The positive nature of Tuesday’s UK growth data left the Euro to Pound Sterling (EUR/GBP) exchange rate on a weaker footing, even as some political jitters remained.
As the fallout from the resignations of key cabinet members continued to fade the mood towards Pound Sterling (GBP) improved, with markets hopeful that a softer form of Brexit will still prevail.
In the absence of a leadership challenge to Theresa May the Pound was able to recover some of its earlier losses.
As analysts at Scotiabank noted:
‘If anything, MPs seemed supportive—change the policy, not the Prime Minister, seems to be the MO for the Brexiteers at the moment.
‘Political risks have diminished somewhat but have not disappeared.’
This has still helped to limit the downside potential of GBP exchange rates, especially as the odds of an August Bank of England (BoE) interest rate hike remain high.
Although a significant degree of Brexit-based uncertainty still hangs over the outlook of the UK economy investors are confident that growth rebounded in the second quarter.
EUR/GBP Exchange Rate Volatility Likely on ECB Commentary
Commentary from European Central Bank (ECB) policymakers could provoke further volatility for the Euro to Pound Sterling (EUR/GBP) exchange rate today.
After President Mario Draghi indicated that interest rates are unlikely to rise before the second half of 2019 on Monday the mood towards the Euro (EUR) has soured somewhat.
However, as long as the central bank remains on course to wind down its quantitative easing programme this is likely to support EUR exchange rates.
Signs of greater hawkishness within the ECB could see the EUR/GBP exchange rate making renewed gains, even though any monetary tightening is unlikely to come imminently.
Any reticence on the domestic outlook, though, may leave the Euro vulnerable to further pressure.
Stronger Eurozone Production Forecast to Shore up Euro Pound Sterling (EUR/GBP) Exchange Rate
A solid improvement in May’s Eurozone industrial production data may encourage the Euro to Pound Sterling (EUR/GBP) exchange rate to push higher.
Signs that the domestic economy is recovering from the weaker growth seen in the first quarter could improve demand for the Euro.
On the other hand, a weaker reading could undermine confidence in the domestic outlook.
Global trade concerns may also drag on EUR exchange rates over the coming days if the Trump administration continues to escalate its protectionist policies.
The threat of the US imposing further tariffs on EU goods could weigh heavily on the single currency, given the sharp decline in the latest German economic confidence measure.
However, if the latest US consumer price index data fails to strengthen as forecast this could offer a rallying point to the Euro to Pound Sterling (EUR/GBP) exchange rate.