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Lacklustre Eurozone Industrial Production Fails to Boost Euro Pound Exchange Rate

Disappointing Eurozone industrial production figures prevented the Euro from making any particular gains at the start of the week.

As output contracted further than forecast at -0.6% on the month this suggested that the domestic economy is still not in the most robust state of health.

With the industrial sector also losing some of its momentum on the year investors continued to lack any significant incentive to favour the single currency on Monday morning.

The continued strength of the US Dollar also weighed on EUR exchange rates, despite market risk aversion easing slightly in the absence of any fresh escalation of the situation with North Korea.

Greater volatility is likely for the Euro in the coming days, however, with the publication of second quarter Eurozone gross domestic product data.

Forecasts point towards a solid uptick in German growth, with signs of strength from the Eurozone’s powerhouse economy boding well for the currency union as a whole.

Investors also expect Italy to demonstrate an acceleration in economic activity on the year, which could go some way towards easing concerns over the country’s outlook.

However, any indications that the Eurozone economy is faltering could set the Euro Pound exchange rate on a fresh downtrend.

As long as the odds of any imminent return to hawkishness from the European Central Bank (ECB) remain limited the Euro may struggle to find any major upside potential against its rivals.

Pound Struggles to Find Support Ahead of UK Inflation Data

Confidence in the Pound, meanwhile, remained relatively muted in anticipation of Tuesday’s UK consumer price index report.

Inflation is forecast to strengthen further on both the month and the year in July, putting more pressure on consumers as wage growth fails to keep pace.

Even so, if inflation rises to 2.7% on the year this could encourage speculation that the Bank of England (BoE) will begin to take a more hawkish view on monetary policy in the near future.

Any perceived increase in the odds of the BoE raising interest rates in the coming months could weigh heavily on the EUR GBP exchange rate, boosting the appeal of the Pound sharply.

On the other hand, if inflationary pressure fails to mount in line with market expectations this may leave Sterling vulnerable to renewed downside pressure.

Wednesday’s raft of UK labour market data may also give investors reason to sell out of the Pound, with wage growth unlikely to show any improvement in the three months to June.

As Marc Chandler, Global Head of Currency Strategy at BBH, noted:

‘The economic reports in the days ahead are unlikely to alter the general understanding of the UK economy. Growth has downshifted, and consumption has slowed. The labour market is robust, but wage growth is slow and slower than inflation, which remains a firm and above target.’

Current EUR GBP Interbank Exchange Rates

At the time of writing, the Euro Pound exchange rate was trending narrowly at 0.9096. Meanwhile, the Pound Euro exchange rate was on a modest downtrend around 1.0992.