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Euro Pound Sterling (EUR/GBP) Exchange Rate Falters on Threat of Italian Euro Exit

European Union news

Italian Budget Worries Drag EUR/GBP Exchange Rate Down

The Euro (EUR) remained under pressure this morning as markets continued to fret over the budget confrontation between Italy and the EU.

Markets were particularly spooked after Claudio Borghi, a senior official from the League, commented that the country could solve its own problems if it were to return to its own currency.

This naturally stoked fresh fears over the possibility of Italy exiting the Euro, prompting EUR exchange rates to trend lower across the board.

With the appeal of the single currency already limited this left the Euro to Pound Sterling (EUR/GBP) exchange rate on a weaker footing.

While Italy leaving the Eurozone still remains a distant prospect the worry was enough to keep the single currency biased to the downside this week.

Pound (GBP) Exchange Rates Ease After Disappointing UK Construction PMI

A modest weakening of September’s UK construction PMI limited the downside potential of the Euro to Pound Sterling (EUR/GBP) exchange rate, however.

Confidence in Pound Sterling (GBP) declined as the PMI dipped from 52.9 to 52.1, even though this still signals that the sector remained in a state of expansion.

Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply, noted:

‘Despite the biggest rise in new orders since December 2016, the sector remained in a downbeat mood with business optimism at its second lowest level since the beginning of 2013.

‘A cause of this malaise pointed to increased cost burdens with both fuel prices on the rise, and acute shortages in raw materials, as supplier delivery times have lengthened to an extent not seen since 2015. The Brexit blot on the landscape was still in evidence as housing activity slowed to a pre-April growth rate and clients hesitated to place orders.’

This weaker showing dented investor confidence ahead of Wednesday’s UK services PMI, which may also soften in response to lingering Brexit uncertainty.

If the service sector shows signs of slowing the mood towards the Pound is likely to deteriorate further, to the benefit of the EUR/GBP exchange rate.

German Factory Order Contraction Forecast to Weigh on Euro (EUR) Exchange Rates

Demand for the Euro is likely to remain limited as long as worries over the Italian government and its budget plans persist.

As long as investors see a risk of Italy leaving the Eurozone and abandoning the single currency the bearish mood of EUR exchange rates looks set to persist.

Friday’s German factory orders data is unlikely to offer the Euro any rallying point, as forecasts point towards a sharp contraction in orders on the year.

Further evidence of a slowdown within the Eurozone’s powerhouse economy could drive fresh losses for the EUR/GBP exchange rate.

As the currency union is already struggling to regain the growth momentum lost since the start of the year a weaker showing would further undermine confidence in the economic outlook.

Any decline in August’s German producer price index figures may also extend the downtrend of the Euro to Pound Sterling (EUR/GBP) exchange rate.