As March’s finalised Eurozone inflation data showed a sharp loss of momentum the appeal of the Euro remained limited.
Investors were not encouraged by the results, considering that the European Central Bank (ECB) maintains that it is yet to see signs of a meaningful uptick in inflation.
With the ECB likely to maintain its current neutral-to-dovish policy outlook for the foreseeable future EUR exchange rates struggled to find any particular upside momentum.
Nerves over the tightening French presidential race also weighed on the single currency this week, with the outcome of the first round of voting far from clear.
Although centrist candidate Emmanuel Macron remains the favourite his lead in the polls has narrowed as the crunch period nears.
As support for National Front leader Marine Le Pen is still fairly solid and with the similarly Eurosceptic far-left Jean-Luc Melenchon gaining momentum the prospect of another populist upset persists.
Demand for the Euro is thus likely to remain muted until the results of the first vote become clear.
Even so, if April’s Eurozone consumer confidence index shows an improvement this could give EUR exchange rates some measure of support ahead of the weekend.
While an uptick in consumer confidence is unlikely to alter the outlook of the ECB it would nevertheless bode well for the health of the currency union, pointing towards stronger domestic spending.
Confidence in the Pound, meanwhile, strengthened in the wake of Theresa May’s surprise call for a general election.
Despite this signalling an increase in political uncertainty in the near term the Euro Pound exchange rate slumped sharply as a result.
Markets are speculating that the Conservatives will return to power with a larger majority, reducing the influence of opposition parties as Brexit negotiations get underway.
While this may give the Prime Minister a greater shot at successfully concluding talks within the two-year timeframe this could also increase the odds of a hard Brexit.
As analysts at TDS noted:
‘The Conservative party holds a slim “working majority” of just 17 in the House of Commons. Current polling suggests that they will increase this majority in the election, giving the party more power to push through more controversial policies.’
Either way, the mood towards Sterling is likely to remain relatively bullish in the near term, barring any significant signs that the Tories will not have an easy ride in the election.
Disappointing domestic data failed to keep the US Dollar on a weaker footing for long, with a contraction in housing starts unlikely to deter the Federal Reserve from pursuing tighter monetary policy.
Any increase in jobless claims for the past week could give the Euro US Dollar exchange rate a modest boost, although confidence in the US labour market remains strong.
So long as there are no significant downside surprises in the latest US data the US Dollar should maintain a relatively bullish outlook, particularly if global geopolitical tensions remain heightened.
Current EUR GBP USD Interbank Exchange Rates
At the time of writing, the Euro Pound exchange rate was trending narrowly at 0.83. Meanwhile, the Euro US Dollar exchange rate was range-bound at 1.07.