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Limited Recovery from Post-2017 Worst for Pound Sterling to Euro Exchange Rate

Pound to Euro Exchange Rate Rebound Limited despite Underwhelming Eurozone Outlook

Demand for the Pound to Euro (GBP/EUR) exchange rate has improved just slightly today, but this is despite the latest Eurozone data leading to further speculation of easing from the European Central Bank (ECB). The Pound (GBP) remains highly unappealing on no-deal Brexit fears.

A brief recovery in GBP/EUR last week was short-lived, as the pair ultimately ended the week slightly lower near the level of 1.1121.

Since opening this week, GBP/EUR has seen much sharper losses. GBP/EUR briefly touched on a low of 1.0887 yesterday, which was the worst level for the pair since September 2017.

GBP/EUR has edged a little higher today amid fresh Euro (EUR) weakness, but its gains were modest at best and the pair still trended below the key level of 1.10 at the time of writing.

Pound (GBP) Exchange Rates Lack Drive to Recover as No-Deal Brexit Fears Dominate

Since the beginning of the week, the Pound has seen significant losses as no-deal Brexit fears have worsened since Britain’s new Boris Johnson government was formed.

Johnson and his officials have indicated that they will take a hard stance on Brexit and will not accept a deal that includes the Irish backstop. They are also reportedly working under the assumption of a no-deal Brexit.

These fears led to a sharp drop in Sterling and continue to keep pressure on the British currency today. As a result, the Pound is unable to recover notably from its worst levels.

Still, the currency has steadied. Some analysts speculate that the government’s stance could moderate on pressure from oppositions in the coming months, According to Justin Onuekwusi, Fund Manager at Legal & General Investment Management:

‘Johnson has just come in so he has to talk tough especially as he has a Brexiteer cabinet. Plus Parliament is on recess so there’s no one to rebuff (pro-Brexit politicians). The ‘Remainers’ have gone quiet as they are on holiday,’

Euro (EUR) Exchange Rates Fall as European Central Bank (ECB) Easing Speculation Rises

Despite the broad lack of appeal in Sterling, a falling Euro helped the Pound to Euro exchange rate to recover from its worst levels today.

Concerns about lingering weakness in the Eurozone economy in recent weeks has left European Central Bank (ECB) easing speculation in focus despite a slightly less dovish than expected tone from the bank in its last policy decision.

With weakness in the Eurozone economy still in focus for Euro investors, today’s Eurozone data has done little to dissuade investors that the ECB could become increasingly dovish.

This morning saw the publication of heavily mixed German retail sales results and French inflation, as well as stronger than expected overall Eurozone growth and weaker than forecast Eurozone core inflation.

Overall, the mixed data with no major sign of recovery was enough to send a message to some analysts that the ECB was likely to become more dovish. According to Bert Colijn, Senior Eurozone Economist at ING:

‘Clearly, the economy is expanding at a slow cruising speed that seems too low for inflation to increase quickly towards the ECB target. And that gives the Bank more ammunition to act in the autumn.’

Pound to Euro (GBP/EUR) Exchange Rate Investors Await Central Bank and Manufacturing News

There is still plenty on the way for Pound to Euro (GBP/EUR) exchange rate investors to react to for the remainder of the week, including news from major Central Banks as well as upcoming datasets.

The Federal Reserve will hold its July policy decision tonight, which could influence direction in the Euro if it surprises investors due to the Euro’s negative correlation with the US Dollar (USD).

Euro investors will also be highly anticipating major Eurozone data due on Thursday and Friday.

Markit’s final July manufacturing PMI for the Eurozone will come in tomorrow, and will give investors a better idea of just how dire the Eurozone’s manufacturing sector is getting.

These stats could influence European Central Bank (ECB) interest rate cut speculation, as could Friday’s Eurozone retail sales results from June.

As for the Pound, it is likely to remain unappealing on no-deal Brexit fears, but the Bank of England’s (BoE) August policy decision tomorrow could also influence the Pound to Euro (GBP/EUR) exchange rate if it surprises markets.