Hopes of Breakthrough on Irish Border Issue Boost Pound Sterling (GBP) Demand
Reports that the EU and UK are progressing towards a Brexit deal saw the Euro to Pound Sterling (EUR/GBP) exchange rate remain under pressure this morning.
With markets hopeful that the issue of the Irish border will soon see resolution, with Ireland now backing Theresa May’s latest customs proposals, the mood towards Pound Sterling (GBP) naturally remained positive.
Although there has been no concrete breakthrough investors have taken heart from the prospect of one, keeping GBP exchange rates on a stronger footing.
This sense of optimism helped to overshadow a disappointing Halifax house price index, which showed a sharp contraction of -1.4% on the month in September.
While this weak reading appears to offer further evidence of a domestic slowdown Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics is not entirely convinced:
‘Halifax’s data is very noisy, so we doubt September’s data signal that the Bank of England’s increase in Bank rate in August has pushed the housing market over the edge.
‘Sustained falls in house prices at a national level aren’t likely. Even so, the combination of rising mortgage rates and heightened economic uncertainty will weigh on demand over the next six months, ensuring that year-over-year growth in house prices barely exceeds zero.’
EUR/GBP Exchange Rate Fails to Benefit From Rising German Price Pressures
Better-than-expected German factory orders and producer price index figures failed to offer a rallying point to Euro (EUR) exchange rates, meanwhile.
Even though August’s headline producer price index accelerated from 3.0% to 3.1% on the year this was not enough to shore up demand for the single currency.
Rising producer prices suggest that inflationary pressure is continuing to mount within the Eurozone’s powerhouse economy, something which could encourage greater European Central Bank (ECB) hawkishness.
Developments in Italy continued to cast a shadow over EUR exchange rates, meanwhile, as tensions over EU budget rules remained heightened.
The Eurosceptic nature of the governing coalition has kept investors on their toes, even as the odds of a potential exit from the Euro have fallen.
German Export Rebound to Offer Boost to Euro (EUR) Exchange Rates
Support for the Euro may materialise next week, however, if August’s German trade data shows a widening of the surplus.
As global trade tensions have weighed heavily on the German economy in recent months a wider trade surplus could give investors cause for confidence.
Signs that Germany is shaking off fears over US protectionism and slowing global trade may see the EUR/GBP exchange rate recovering some of this week’s losses.
If export volumes fail to rebound significantly on the month, though, the Euro may struggle to return to a stronger footing.
The Euro to Pound Sterling (EUR/GBP) exchange rate is likely to remain vulnerable to political developments in the days ahead, particularly if tensions between the Italian government and the EU flare up.