Pound to Euro Exchange Rate Lacks Drive to Advance as Euro Remains Sturdy
Investors remained hesitant to buy the Pound Sterling to Euro (GBP/EUR) exchange rate this week, despite cautious optimism that progress could be made in Brexit talks. GBP/EUR weakness has been largely due to an increasingly resilient Euro (EUR).
After last week’s slip from 1.1188 to 1.1136, GBP/EUR has seen tighter trade this week so far. GBP/EUR has been fluctuating between highs of 1.1178 and lows of 1.1113 but has generally remained close to the week’s opening levels.
The Euro has been one of this week’s most appealing currencies, due to broad weakness in its rival the US Dollar (USD). The shared currency found extra support on Thursday in the form of some mostly optimistic Eurozone PMI data.
Meanwhile, the Pound (GBP) was unable to benefit too strongly from market hopes for Brexit developments or recent UK data, due to the fresh Euro strength. Uncertainties about the Brexit process still kept a cap on Sterling strength too.
Pound (GBP) Exchange Rates Avoids Further Losses on Brexit Hopes
The sturdy Euro could have pushed the Pound to Euro exchange rate even lower, but the Pound has been supported by some domestic factors this week.
Tuesday’s UK public sector net borrowing data showed that the borrowing surplus had unexpectedly been the best July surplus in 18 years, and bolstered hopes for the UK Treasury’s autumn Budget.
Some investors have also become cautiously optimistic about potential developments in Brexit talks, as negotiations resumed this week.
UK ministers have expressed confidence that some kind of UK-EU exit agreement can be reached by the time of an EU summit in October, but some EU diplomats believe delays may be needed.
According to Ken Odeluga, market analyst from CityIndex, even this slight cautious optimism is much better for Sterling than the ‘no deal’ panic of a few weeks ago:
‘The most substantial development for Sterling would be, if confirmed, any suggestion from (Michel) Barnier’s office that more time could be offered at any stage,’
Euro (EUR) Exchange Rates Find Support in USD Weakness, Eurozone PMIs
For most of the week so far, investors have been selling the US Dollar (USD), ending the currency’s recent bullish streak and making its rival, the Euro, much more appealing to investors.
Concerns about the independence of the Federal Reserve following critical comments from US President Donald Trump, as well as political uncertainties following criminal convictions of two of Trump’s ex-allies, caused the US Dollar to plunge.
Domestic news improved Euro demand towards the end of the week too, as the Eurozone’s August PMI projections were generally solid.
France’s August PMI projections from Markit beat forecasts in every notable print, and German PMIs beat forecasts in every print except manufacturing.
While the Eurozone’s overall PMI projections fell slightly short of expectations in manufacturing and composite prints, the services figure met forecasts and rose from 54.2 to 54.4.
Overall, investors were happy that France and Germany’s economies were performing better than expected in August despite persisting concerns about US trade protectionism.
Pound to Euro (GBP/EUR) Forecast: German Growth Data and Brexit Developments in Focus
While the Pound has yet to have seen much notable shift in direction this week, there is still chance for the direction of the Pound to Euro (GBP/EUR) exchange rate to change if there are any important Brexit developments before markets close on Friday.
Any signs of progress in UK-EU Brexit negotiations, such as indication that the EU would be willing to delay its planned deadlines or even make concessions, would likely make the Pound more appealing.
As for the Euro, it is likely to be continue to hold its ground amid weaker US Dollar (USD) performance. If the USD strengthens again, it’s likely EUR will weaken.
Friday’s Eurozone data may also prove influential for the shared currency, as Germany’s final Q2 Gross Domestic Product (GDP) growth rate report will be published. If the German growth beats forecasts the Euro would have stronger domestic support.
Looking ahead, next week’s Eurozone confidence, unemployment and inflation data is also likely to influence the Pound to Euro (GBP/EUR) exchange rate.