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Pound to Euro Exchange Rate Tests 1.11 as German Trade Data Hints at Steady Outlook

Pound to Euro Exchange Rate Trends near Worst Levels as Brexit Fears Persist

Tuesday’s key German trade data did little to change the market’s Euro (EUR) outlook, so the Pound Sterling to Euro (GBP/EUR) exchange rate continued to trend lower as ‘no deal’ Brexit fears kept pressure on Sterling (GBP).

Last week’s Brexit jitters and underwhelming Eurozone data meant GBP/EUR had only edged slightly lower from 1.1242 to 1.1238 throughout the week.

However, since markets opened on Monday, GBP/EUR has already seen a solid fall, touching on a fortnight low of 1.1193. At the time of writing on Tuesday, GBP/EUR was struggling to hold above the key level of 1.12 and trended in the region of 1.1197.

Analysts were initially concerned that Germany’s key data this week could indicate that Germany’s economy was being more heavily affected than US trade protectionism, but the data has generally indicated that this could be a temporary weakness.

Meanwhile, as concerns of a possible ‘no deal’ Brexit persist, the Pound is unlikely to see much stronger demand any time soon.

Pound (GBP) Exchange Rates Remain Under Pressure on Broad Brexit Uncertainties

The Pound fell to significant lows against many major rivals, including the Euro and US Dollar (USD), on Monday, as investors reacted to the latest Brexit developments.

Over the weekend, UK Trade Secretary Liam Fox indicated he believed that Britain was actually heading towards a ‘no deal’ Brexit, and said that the odds of such a Brexit were currently around 60-40.

This chance of a worst-case scenario Brexit was higher than most analysts had predicted, which caused some panicked Pound selling when markets opened on Monday.

Recent UK data has failed to support the Pound either, as data continues to be influenced by Brexit uncertainties too.

With the Brexit set to formally take place next March, analysts predict that the Pound’s volatility may only get worse. According to Thanos Vamvakidis from Bank of America Merrill Lynch:

‘If we don’t get a deal, sterling can be weaker by about 10%, (or) even lower. If you get a deal, any deal, …. (Sterling) can be up by 10%. I don’t think any other currency can have this kind of moves in the next few months.’

Euro (EUR) Exchange Rates Steady as German Trade Data Offers No Surprises

Tuesday saw the publication of what was likely to be this week’s most influential Eurozone data, in the form of Germany’s June trade results.

Germany’s trade surplus rose, as some analysts expected. The figure climbed from €19.6b to €21.8b, while the seasonally adjusted trade surplus unexpectedly slipped from €20.4b to €19.3b.

Perhaps most notable though was the June exports figure, which slipped from 1.7% to 0%, rather than contracting at the forecast -0.4%.

Imports were much higher than expected, climbing from 0.7% to 1.2%.

Analysts noted that Germany’s data this week has shown a pattern of weakness, following last month’s much stronger results. According to Andreas Rees from UniCredit Bank though, this could moderate in the coming months:

‘Industrial production declined 0.9% mom, while exports treaded water (yesterday’s new orders: -4.0%). However, in all three cases, the decreases (or stagnation) came after strong rises in the previous month.

Going forward, we expect a moderate acceleration in the industrial sector on average, driven by global trade and solid domestic demand.’

Pound to Euro (GBP/EUR) Forecast: Brexit Developments and UK Growth in Focus

The UK and Eurozone economic calendars will be relatively quiet for the coming sessions, with the next notable data not due for publication until Friday.

As a result, and with recent Eurozone data steady and US-Eurozone trade nerves a little lighter, the Euro is likely to see relatively steady movement.

This could leave the Pound to Euro (GBP/EUR) exchange rate reacting largely to potential developments regarding the Brexit process.

Sterling is unlikely to become more appealing unless news from the UK government or EU negotiators is perceived as making the chances of a good UK-EU deal more likely.

If ‘no deal’ Brexit concerns worsen further though, GBP/EUR may remain unappealing and could continue to trend near its recent lows.

Even if Britain’s latest Gross Domestic Product (GDP) growth results impress investors on Friday, the Pound to Euro (GBP/EUR) exchange rate’s potential for recovery will likely be limited by Brexit jitters.