Pound Sterling Euro (GBP/EUR) Exchange Rate Benefits From Softened German Consumer Confidence
A slight dip in the German GfK consumer confidence index encouraged the Pound Sterling to Euro (GBP/EUR) exchange rate to recover ground and lift itself away from its recent eleven-month low.
While the confidence index remains in positive territory, clocking in at 10.5 rather than 10.6, this sign of easing domestic sentiment failed to impress investors.
As the report from GfK noted:
‘The positive outlook for the consumer economy will only continue as is if the job market remains stable, which is the current assumption, and there are no additional risks threatening from the price front. A further increase in inflation would certainly dampen the consumer climate.’
This left the Euro (EUR) on a generally weaker footing even as hopes of a resolution to trade tensions with the US mounted in the wake of the US-Mexico trade deal.
With price pressures forecast to remain elevated for some time yet the German economy could come under fresh pressure as consumer sentiment sours further.
Worries over the outlook of the Italian economy have also continued to pressure the single currency, with the populist government still on a collision course with EU budget rules.
Brexit Uncertainty Continues to Cast Shadow Over GBP/EUR Exchange Rate
A temporary easing in market speculation over Brexit helped to boost the Pound Sterling to Euro (GBP/EUR) exchange rate, meanwhile.
Although investors remain wary of the prospect of the UK leaving the EU without any new deal in place the mood towards Pound Sterling (GBP) still recovered on Wednesday morning.
However, if the timetable of negotiations continues to slip and the odds of a no deal Brexit increase this could pressure GBP exchange rates further over the coming days.
As forecasts point towards an easing in July’s UK net consumer credit and mortgage approvals figures the Pound could lose further ground ahead of the weekend.
Evidence that consumer confidence and borrowing are in decline would give investors less cause for optimism regarding the domestic outlook.
Steady Eurozone Inflation to Limit Pound Sterling Euro (GBP/EUR) Exchange Rate Strength
Further volatility is likely in store for the Pound Sterling to Euro (GBP/EUR) exchange rate in the near term with the release of the latest German and Eurozone consumer price index data.
While markets do not expect to see any fresh uptick in inflationary pressure at this stage the headline Eurozone CPI is expected to hold steady at 2.1% on the year.
As long as inflation continues to run above the European Central Bank’s (ECB) 2% target this is likely to encourage policymakers to adopt a more hawkish outlook on monetary policy.
Even though no change in interest rates is forecast until well into 2019 another solid inflation reading could still boost demand for the single currency.
On the other hand, if inflation shows signs of faltering once again this could push back the likely timing of an ECB rate hike and help to boost the Pound Sterling to Euro (GBP/EUR) exchange rate.