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Euro to Pound Sterling Exchange Rate Climbs on US Dollar Weakness and UK Retail Concerns

Euro to Pound Exchange Rate Trends Nearer Weekly Best Despite Lack of Strong Eurozone Data

Despite the European Central Bank (ECB) publishing a cautious economic bulletin on Thursday, the Euro to Pound Sterling (EUR/GBP) exchange rate climbed for most of the European session.

Since opening this week at the level of 0.9003, EUR/GBP has trended with a downside bias and has struggled to hold above the key 0.90 level. The pair touched on a weekly low of 0.8919 on Christmas Day.

On Thursday though, weakness in the US Dollar (USD), the Euro’s (EUR) biggest rival, made the Euro more appealing and EUR/GBP trended closer to the level of 0.9021 at the time of writing.

Investors piled into the Euro as the US Dollar weakened, despite expectations that the Eurozone economy will weaken in the next year.

Sterling (GBP) was unable to hold its ground against the Euro, as Brexit uncertainties leave the British currency limp.

Euro (EUR) Exchange Rates Climb as US Dollar (USD) Sheds Wednesday Strength

Investors reacted to a brief US stock market surge in the middle of the week by buying the US Dollar (USD), which sees a negative correlation to the Euro (EUR) as the shared currency’s biggest rival.

This also meant that when the stock market rebound fizzled out on Thursday and the US Dollar (USD) began to weaken again, the Euro benefitted.

Various factors keeping pressure on the US Dollar (USD) are essentially the primary cause of Euro strength towards the end of the week.

Uncertainties about a US government shutdown, slowing global growth and lasting fears about US-China trade tensions and whether they will lighten in 2019, left the US Dollar (USD) unappealing and the Euro stronger.

The Euro may also have benefitted from reports suggesting that Erkki Liikanen, former Bank of Finland Governor, was currently tipped as the most likely to replace European Central Bank (ECB) President Mario Draghi when Draghi’s term comes to an end.

While not seen as economists’ preferred candidate, the news cooled some market uncertainties about the ECB’s future.

The Euro’s strength was ultimately limited by market expectations for further economic weakness in the Eurozone, especially following a cautious economic bulletin from the ECB.

Pound (GBP) Exchange Rates Limited by Brexit Jitters and UK Retail Concerns

Sterling has remained unappealing this week. With UK politics and the Brexit process seeing complications throughout December and a lack of optimistic UK data or news, investors simply have no reason to buy the British currency.

The Pound continues to trend relatively closely to its worst levels with Brexit uncertainties keeping the pressure on.

Demand for the British currency was further pressured on Thursday though, by reports showing that UK retail activity around the holiday period was weakening.

According to Diane Wehrle, Insights Director at Springboard:

‘Boxing Day has become less important as a trading day. You don’t get that massive surge, particularly as we’ve had virtually continuous discounting since Black Friday [at the end of November].’

Euro to Pound (EUR/GBP) Exchange Rate Investors Anticipate German Inflation Results

This week’s most notable Eurozone and UK ecostats will be published on Friday, giving investors a little more to react to as the final full week of 2018 heads to an end.

The biggest news of the day will be Germany’s December Consumer Price Index (CPI) inflation rate projection.

The European Central Bank (ECB) has predicted that Eurozone price pressures will improve despite signs of slowing global growth. If German inflation beats expectations it could bolster speculation for a 2019 ECB interest rate hike.

Of course, weaker than expected German inflation would leave the Euro weaker and potentially prevent EUR/GBP from sustaining gains this week.

UK finance mortgage approvals data will be published too, but is unlikely to be particularly influential.

Euro to Pound (EUR/GBP) exchange rate investors will also focus on shifts in global market sentiment and the strength of the US Dollar (USD) before markets close this week.