With UK data generally lacking this week, the Pound to Euro exchange rate has been prompted to extend its losses as the odds of a hard Brexit strengthen.
- Better-than-expected ZEW Economic Sentiment Surveys boosted Euro – Single currency strengthened by positive domestic outlook
- Brexit worries maintained Pound downside bias – Prospective loss of single market access remains significant drag on GBP demand
- Weaker German Wholesale Price Index could point towards softening inflation – GBP EUR exchange rate may benefit from Euro weakness
- Limited UK data expected to leave Pound driven by market sentiment – Investor worries likely to continue weighing on Sterling
Despite the relative strength of the US Dollar the single currency was encouraged to trend higher, benefitting from positive Eurozone data.
Strengthened Eurozone Confidence Weighed on GBP EUR Exchange Rate
The appeal of the Pound (GBP) has continued to decline in the early week, with little to distract investors from the increasing prospect of a hard Brexit. There are worries that the City is likely to take a hard hit in the event of the UK losing access to the single market, prompting the Pound to Euro (GBP EUR) exchange rate to trend lower. As researchers at BBH note:
‘It has fallen in eight of the past 10 sessions. The Euro has risen against Sterling for four consecutive sessions also and in nine of the past 10 sessions. The general direction has been set in motion, not by UK economic data, which continues to surprise on the upside, but by fears that the UK will cut its nose to spite its face.’
Demand for the Euro (EUR), meanwhile, was boosted by a strong showing on October’s ZEW Economic Sentiment Surveys. These indicated that confidence within both Germany and the wider currency union has continued to strengthen, shrugging off the initial negative impact of the Brexit vote. This built on the news that the Eurogroup had approved the latest tranche of Greek bailout funds, suggesting a more positive outlook for the Eurozone.
GBP EUR Exchange Rate Could Trend Higher if German Price Data Disappoints
This morning’s German Wholesale Price Index data could dent the single currency, though, if the figures point towards a further contraction in prices on the year. Given the data’s position as a possible early indicator of changes to the Consumer Price Index, any weakness here is unlikely to encourage investors. Should the figures seem to point towards softer inflationary pressure within the Eurozone’s powerhouse economy then the GBP EUR exchange rate could claw back ground.
However, expectations are positive for August’s Eurozone industrial production report. If output is shown to have rebounded strongly in line with forecasts then the Euro could find further support. Resilience within the industrial sector would go some way to allaying worries over the robustness of the Eurozone economy, putting less pressure on the European Central Bank (ECB) to consider further monetary loosening in the near future.
Pound (GBP) Forecast to Remain Under Pressure from Brexit-Based Anxiety
UK data will remain in rather short supply over the course of the week, with demand for Sterling likely to be driven primarily by political developments. Should the government continue to harden its stance on the issue of Brexit then downside pressure is expected to continue mounting on the GBP EUR exchange rate. With a number of international banks having confirmed their intentions to move at least some of their operations out of the UK in the event of a hard Brexit confidence is expected to deteriorate further.
Even so, towards the end of the week GBP exchange rates could find some support on the back of the latest RICS House Price Balance and construction output figures. Improvements are expected from both datasets, although the impact of even bullish results could prove limited in the current market climate.
Current Interbank Exchange Rates
At the time of writing, the Pound to Euro (GBP EUR) exchange rate was slumped in the region of 1.10, while the Euro to Pound (EUR GBP) pairing was trending higher at 0.90.