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Euro Struggles to Hold Ground vs Pound, US Dollar Ahead of Crunch Eurogroup Meeting

Although centrist President Emmanuel Macron looks set to secure a landslide majority in the French parliamentary elections the Euro struggled to hold onto its initial bout of optimism for long.

As the German wholesale price index weakened on the month this added to doubts that inflationary pressure within the Eurozone is continuing to build up.

Unless inflation starts to pick up more materially the European Central Bank (ECB) is likely to maintain a relatively neutral outlook on monetary policy for the foreseeable future.

An uptick in the ZEW economic sentiment index could offer EUR exchange rates a rallying point, however, with signs of greater confidence across the currency union likely to encourage investors.

On the other hand, if sentiment fails to improve particularly on the month the Euro may struggle to find any particular momentum against its rivals.

Jitters are likely to increase ahead of Thursday’s critical Eurogroup meeting, at which it is hoped the next tranche of Greek bailout funds will be released.

If Eurozone finance ministers fail to approve the funds, however, fears of a fresh Eurozone crisis are set to increase.

As Greece faces a substantial debt repayment deadline in July any further delay to the disbursement of bailout funds could put the financial future of the Hellenic nation in jeopardy once again.

However, if creditors are able to resolve at least some of their issues at this juncture the mood towards the Euro could improve, even if the matter of debt relief remains unresolved for the time being.

Pound Recovers Ground on Easing Political Uncertainty

Confidence in the Pound improved somewhat on Tuesday morning after Conservative backbenchers adopted a more supportive position towards Theresa May.

While a sense of political uncertainty undoubtedly remains the pressure on Sterling eased somewhat, particularly as hopes of a softer government approach to Brexit mounted.

However, the Euro Pound exchange rate could return to a bullish run if the Bank of England (BoE) proves more dovish in outlook at its policy meeting on Thursday.

Any signs that the BoE is likely to leave monetary policy on hold for longer could dent the appeal of the Pound, especially if the balance of the Monetary Policy Committee (MPC) leans more towards the doves.

Even if the controversial Conservative alliance with the Democratic Unionist Party (DUP) is finalised rapidly this is unlikely to completely dismiss the uncertainty created by the snap general election, leaving Sterling vulnerable to further softness.

Dovish Fed Rate Hike Could Dent US Dollar Appeal

As markets are confident that the Federal Reserve will raise interest rates on Wednesday the upside potential of the US Dollar has remained a little limited.

Kit Juckes, research analyst at Societe Generale, noted:

‘The Fed’s insouciance about market pricing for the peak of the rate cycle, along with the fall in wage growth and inflation since the start of the year, is behind both the Dollar’s relative softness, and markets’ overall buoyancy. A ‘dovish hike’ would sustain both these trends, while anything that moves the end-2019 rate expectation upwards is likely to help the Dollar.’

Given that recent US data has proved generally disappointing in nature the chances of the Fed pursuing a more aggressive pace of monetary tightening seem limited.

Should policymakers indicate that another interest rate hike is likely to be some way off the Euro US Dollar exchange rate could gain a strong boost.

Current EUR GBP USD Interbank Exchange Rates

At the time of writing, the Euro Pound exchange rate was trending narrowly in the region of 0.8830. Meanwhile, the Euro US Dollar exchange rate was on a modest uptrend at 1.1211.