Pound to Euro Exchange Rate Struggles to Recover Despite Mixed EUR Demand
On Monday, some stronger-than-forecast German business confidence data was all that was needed to push the Pound Sterling to Euro (GBP/EUR) exchange rate lower. Sterling (GBP) is likely to lack the drive to sustain notable gains until later in the week.
Some surprisingly optimistic Eurozone PMI data helped GBP/EUR to fall from 1.1440 to 1.1378 last week. On Monday, GBP/EUR slipped further and trended near a weekly low of 1.1339.
While GBP/EUR edged away slightly from its worst levels on Tuesday morning, its gains were limited as investors were hesitant to buy the Pound ahead of Friday’s key UK growth results.
Investors are also awaiting further signals from the Bank of England (BoE), following the hawkish tone it took in last week’s policy decision.
The Euro (EUR), on the other hand, has climbed in response to business confidence data from Germany. The gains were limited though, as analysts saw signs that the tailwinds of Germany’s strong 2017 growth were running out of steam.
Pound (GBP) Exchange Rate Demand Limp despite Higher Bank of England Bets
Last week’s surprisingly hawkish Bank of England (BoE) policy decision was not enough to give lasting appeal to Pound trade, as the Pound to Euro exchange rate still fell last week and continued to slide on Monday.
Three BoE policymakers had voted to hike UK interest rates in June’s policy decision and argued that Britain’s economic growth had rebounded from the poor performance seen at the beginning of the year.
However, while BoE interest rate hike bets rose in response to the BoE news, many investors remained hesitant to buy Sterling amid persistent domestic uncertainties.
Brexit remains a big concern, with next year’s Brexit day drawing closer and the UK government still seemingly far from making a strong post-Brexit trade deal with the EU.
On top of this, some investors are unconvinced that Britain’s economy is strong enough to sustain tighter monetary policy from the BoE – making this Friday’s upcoming UK growth report highly anticipated.
Euro (EUR) Exchange Rates Supported by Signs of Resilience in Eurozone Economy
Monday’s German business confidence survey data contained both good and bad, with elements that appeared bullish or bearish to different Euro traders.
In short, Ifo’s confidence figures beat expectations in two major prints but disappointed in one of them.
The business climate figure printed at 101.8, rather than the forecast 101.7, while the expectations figure printed at 98.6 and comfortably beat the forecast 98.
Clemens Fuest, Ifo’s President, noted that while the expectations for businesses were still quite optimistic, they were less satisfied with the current business situation.
This was due to global trade jitters and slowing Eurozone growth, and it has limited the Euro’s strength.
Pound to Euro (GBP/EUR) Forecast: Eurozone Confidence and other Key Stats Ahead
The Pound to Euro (GBP/EUR) exchange rate’s movement has been relatively limp this week so far, but the pair’s movement is likely to be much greater towards the end of the week as more influential data is published.
Wednesday will see the publication of France’s June consumer confidence results, followed by German consumer confidence and Eurozone business and consumer confidence figures on Thursday.
While these may be influential to Euro trade, inflation data due on Thursday and Friday will be even more vital. German inflation will be published on Thursday, with French and overall Eurozone inflation projections for June on Friday.
If Eurozone inflation beats forecasts, this would have the biggest potential bullish impact on European Central Bank (ECB) interest rate hike bets and could strengthen Euro demand towards the end of the week.
However, it’s worth noting that Pound’s lack of strength from Bank of England (BoE) interest rate hike bets is partially due to anticipation for this week’s UK growth data.
If the growth data is solid or beats forecasts, it could make investors more confident in the bank’s recent hawkishness and the Pound to Euro (GBP/EUR) exchange rate would rise.