Political worries continued to weigh heavily on the Pound Euro exchange rate as Theresa May faces another cabinet reshuffle.
The resignation of International Business Secretary Priti Patel leaves May’s minority government looking rather fragile, giving investors fresh reason to sell out of Sterling.
As Tim Riddell, research analyst at Westpac, noted:
‘An uncomfortable mix of misdemeanours is increasing the political vulnerability of May’s govt. into the 22 Nov budget. The tightness of public finances means that the budget is unlikely to provide a fiscal boost and Brexit talks are failing to show any positive breakthrough.
‘Rebounds should be limited. Political, Brexit and investment pressures are likely to undermine GBP into the budget.’
However, the GBP EUR exchange rate could still find a rallying point ahead of the weekend if the NIESR gross domestic product estimate for the three months to October proves positive.
As long as economic growth shows no signs of faltering then the mood towards the Pound is likely to pick up, with a strong fourth quarter potentially helping to offset the impact of a weaker first half of the year.
If the estimate does suggest a loss of momentum, though, this is likely to add to the bearishness of Sterling as Brexit-based uncertainty looks set to continue weighing on growth in the coming months.
Higher Eurozone Growth Forecasts Benefit EUR Rates
Some measure of strength returned to the Euro, meanwhile, as Germany’s trade surplus widened further than forecast in September, clocking in at 24.1 billion rather than 22.5 billion.
Naturally this suggests that the Eurozone’s powerhouse economy remains in a robust state of health, with export volumes showing a much smaller contraction than anticipated.
The European Commission’s economic forecasts further fostered this sense of optimism, as the latest revisions pointed towards even stronger growth within the Eurozone in 2017.
Altogether this painted a much more encouraging picture of the domestic outlook, prompting the GBP EUR exchange rate to extend its downtrend.
Even so, the Euro remains vulnerable to losses if European Central Bank (ECB) policymakers fail to adopt a more hawkish tone in their latest comments.
With a number of ECB policymakers set to speak ahead of the weekend this could fuel volatility for the single currency, keeping the odds of any imminent tightening from the central bank low.
Any signs of greater optimism within the ECB’s ranks could boost the Euro, though, as markets continue to hope for a return to a monetary tightening bias.
Current GBP EUR Interbank Exchange Rates
At the time of writing, the Pound Euro exchange rate was slumped in the region of 1.1283. Meanwhile, the Euro Pound exchange rate was making gains around 0.8861.