Diminished Hopes for Brexit Deal Weigh Heavily on Pound Sterling (GBP)
Comments from Theresa May’s spokesman saw Pound Sterling (GBP) come under renewed pressure on Monday afternoon as hopes of an imminent Brexit deal diminished.
As the spokesman emphasised the difference between optimistic talk of a deal and the actual agreement of a deal the mood towards the Pound soured sharply.
The acknowledgement that there are still big issues to be resolved between the two sides gave investors little incentive to favour Sterling at this juncture.
With the prospect of a November deal looking less certain the Euro to Pound Sterling (EUR/GBP) exchange rate gained a boost.
In the absence of earlier market optimism surrounding Brexit talks the Pound looks vulnerable to the downside in the days ahead.
Mounting Tensions Between Italy and EU Pressure Euro (EUR)
As German industrial production defied expectations to show a modest monthly contraction of -0.3% in August the Euro (EUR) struggled to find any particular traction.
EUR exchange rates also came under pressure thanks to the sustained elevation in tensions between Italian and EU officials.
The dispute over Italian budget proposals rumbled on at the start of the weekend, fuelled by disparaging comments from Italian Deputy Prime Minister Matteo Salvini.
Salvini’s suggestion that European Commission President Jean-Claude Juncker is an ‘enemy of Europe’ did little to settle the nerves of investors, prompting a fresh bout of Euro selling.
This did not encourage hopes that the budget dispute will see any resolution in the near term, raising the risk of a fresh Italian debt crisis.
As analysts at Danske Bank noted:
‘The current stand-off between Italy and the Commission has led to renewed pressure on Italian government bond yields as well as the Italian equity market. The next focal point for markets will be 15 October, which is the deadline for the budget draft to be presented to Brussels, and our base case is now that the Commission will give a negative opinion on the Italian budget.’
If tensions continue to rise the EUR/GBP exchange rate will struggle to hold onto its positive footing for long.
Strengthening German Trade Forecast to Boost Euro (EUR) Exchange Rates
The Euro could find fresh support on Tuesday, however, with the release of August’s German trade data.
A widening of the trade surplus would offer EUR exchange rates a rallying point, especially if export volumes show a strong rebound on the month.
Evidence of strengthening German trade could boost confidence in the outlook of the wider Eurozone economy, even as global trade worries persist.
Another decline in exports, on the other hand, would leave the Euro vulnerable to further losses against its rivals.
If the Eurozone’s powerhouse economy continues to come under pressure from easing global trade, limiting domestic economic momentum, the Euro to Pound Sterling (EUR/GBP) exchange rate looks set to return to a downtrend.