Pound to Euro Exchange Rate Losses Limited by Weaker Eurozone Data
Expectations of slowing Eurozone growth has left the Euro (EUR) weaker in recent weeks, but the Pound Sterling to Euro (GBP/EUR) exchange rate still slipped on Monday as investors reacted to the latest Brexit reports.
Speculation that the UK and EU could agree to a Brexit deal very soon combined with Euro weakness helped GBP/EUR to climb from 1.1390 to 1.1442 throughout the course of last week.
GBP/EUR was unable to hold Friday’s 6-month-high of 1.1504 however, as Brexit uncertainties began to set in again.
Brexit jitters were only exacerbated on Monday, amid reports that members of UK Prime Minister Theresa May’s government Cabinet were concerned that her so-called ‘Chequers plan’ would be unable to pass through UK Parliament.
Still, Sterling (GBP) ultimately fell a lot less versus the Euro than against some other major rivals, as the Euro was also pressured by a combination of Brexit uncertainties and Eurozone economic concerns.
Pound (GBP) Exchange Rates Slump as Brexit Fears Return to Headlines
On Monday morning, investors sold the Pound in reaction to reports that sources within the UK government Cabinet had doubts that UK Prime Minister Theresa May’s Brexit plan would be able to pass through UK Parliament.
Despite recent UK data, the Pound is once again becoming increasingly volatile to Brexit developments as the year draws to an end and the date Brexit will formally begin edges closer.
Shifts in market sentiment about the direction the Brexit process could head have been closely correlated to Pound movements, with that correlation only intensifying this month.
Speculation that the UK and EU could finally reach a Brexit deal soon left Pound investors more bullish last week, but that bullishness was quickly replaced by bearishness in reaction to Monday’s news.
According to Ricardo Evangelista, Senior Analyst at ActivTrades:
‘As the struggle within the British camp intensifies, so does the chance of a no deal Brexit and perhaps of an earlier general election. Both scenarios present more downside risk for Sterling.’
Euro (EUR) Exchange Rates Fail to Capitalise on Sterling Weakness
The Pound to Euro exchange rate only saw modest losses on Monday despite the spike in Brexit jitters, as these concerns also dampened market demand for the Euro.
While Brexit news has typically had a stronger influence on Sterling, it still influences the Euro as the Eurozone economy will be impacted by Britain’s departure from the EU – especially in the event of a ‘no-deal Brexit’.
On top of Brexit jitters though, recent Eurozone data has been concerning and has continued to indicate that the Eurozone’s growth is slowing significantly, despite the strong growth the bloc saw in 2017.
Weaker Eurozone data has dampened Euro demand, and also limited the European Central Bank’s (ECB) room for hawkishness.
The ECB has indicated that the Eurozone’s economic slowdown is within the bank’s expectations, but this has dampened market hopes that the bank could be pressured into tightening Eurozone monetary policy any time soon.
Monetary policy divergence has also weighed on the Euro. As the Federal Reserve has maintained a hawkish stance and is signalling more US interest rate hikes are on the way while ECB rates remain at their lowest on record, the Euro has slipped.
Pound to Euro (GBP/EUR) Exchange Rate Could Fall Further if Eurozone Data Impresses
The Pound to Euro (GBP/EUR) exchange rate’s Monday losses were limited by expectations of a slowing Eurozone economy, exacerbated by weak Eurozone data and fears of a potential ‘no-deal Brexit’.
However, that means if upcoming Eurozone data comes in notably stronger than expected, the Euro could strengthen and more easily push GBP/EUR lower.
Tuesday will see the publication of a slew of Eurozone ecostats, including German inflation data from October and the Eurozone’s November economic sentiment stats from ZEW.
If Brexit jitters persist and these beat forecast, GBP/EUR will fall further.
Of course, if there are any more optimistic Brexit developments the Pound could see a surge in demand instead. Investors will eagerly anticipate signs that UK Prime Minister Theresa May has enough domestic support to pass her soft Brexit plan.
Later in the week, German and Eurozone growth projections, as further Eurozone inflation stats, could inspire movement in the Pound to Euro (GBP/EUR) exchange rate.