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Pound to Euro (GBP/EUR) Exchange Rate Forecast to Advance amid Italian Political Uncertainty

Pound to Euro (GBP/EUR) Exchange Rate Rises on Eurozone Political Concerns

Thanks partially to some solid data from the UK, the Pound to Euro (GBP/EUR) exchange rate was able to more easily advance on Monday.

Sterling (GBP) recovered from its worst levels against the Euro (EUR) as the shared currency was pressured by Eurozone political uncertainties.

Brexit concerns left GBP/EUR plunging last week. The pair opened the week at the level of 1.1361 and closed at the level of 1.1205. The pair touched lows of 1.11 on Friday for the first time since November 2017.

The pair edged away from its lows on Monday though, as the Euro’s strength was weighed down by the results of Italy’s 2018 general election.

Italy’s election saw populist parties and right-wing parties surge in popularity, indicating that Italy was headed for a hung parliament.

The anti-establishment Five Star Movement party won around 31.6% of the vote according to early results, while the currently ruling Democratic Party (DP) only won 19.1%.

While the Five Star Movement has taken Eurosceptic stances in the past, it had edged away from anti-Eurozone rhetoric in recent months. Still, the party’s success in elections has left markets anxious that this could lead Italy to distance itself from the EU.

Pound (GBP) Exchange Rates Supported by UK Services Results

Despite disappointing UK manufacturing and constriction PMIs from Markit last week, the Pound benefitted from stronger than expected UK services and composite figures on Monday morning.

Markit’s UK services PMI was forecast to have improved just slightly from 53 to 53.3 in February, but instead climbed to 54.5 – the print’s best figure in four months.

As UK services make up a major chunk of Britain’s economic activity, this supported Pound trade on Monday.

However, investors remained concerned about British consumers, who remained cautious in February according to Duncan Brock from the Chartered Institute of Procurement & Supply;

‘In fact it was business customers that had the confidence to forge ahead with orders, as consumers hesitated over concerns about possible rate rises impacting on their household budgets and what the future could hold.’

Due to the stronger UK services stats, Markit’s composite UK PMI also beat expectations in February. The figure was forecast to edge higher from 53.5 to 53.6, but instead rose to 54.5.

Overall though, concerns about consumer confidence, as well as last week’s concerns about new deadlocks in UK-EU Brexit negotiations, limited the Pound’s recovery against the Euro.

Solid Eurozone Data and German Political News Supports Euro (EUR) Trade

While the results of Italy’s 2018 general election weighed on the Euro on Monday and made it easier for GBP/EUR to advance, the Euro’s losses were limited by other supportive factors.

The weekend also saw Germany’s SPD Party finally vote to support a ‘grand coalition’ with Chancellor Angela Merkel’s CDU Party.

This meant that months after the German election in September 2017, Merkel had finally secured her fourth term. This result gives Germany consistency with the previous government, which was a CDU/SPD ‘grand coalition’ too.

Germany’s ‘grand coalition’ news ultimately prevented the Euro from seeing worse losses against the Pound.

Recent Eurozone data has been decent enough to keep investors optimistic in the Eurozone outlook, which has given further support to Euro trade.

Pound to Euro (GBP/EUR) Forecast: European Central Bank (ECB) Meets This Week

Political developments regarding the Brexit process and Italy’s latest general election is likely to remain a focus for Pound to Euro (GBP/EUR) exchange rate trade in the coming days.

However, the European Central Bank (ECB) will be holding its March policy decision on Thursday and this could cause a shift in Euro movement if it surprises investors.

Markets will be keeping a close eye for potential comments from the ECB regarding the recent Eurozone political developments, as well as any comments the bank may have on the US Presidential administration’s protectionist stance on trade.

For example, if the bank indicates that the planned US trade tariffs could have a negative impact on the Eurozone economy the Euro could weaken.

As well as political developments and ECB news, the Pound to Euro (GBP/EUR) exchange rate could be influenced by upcoming data.

Key Eurozone growth projections for Q4 2017 will be published on Wednesday and UK trade stats will come in on Friday.