BoE Brexit Analysis Limits Pound Sterling Euro (GBP/EUR) Exchange Rate Support
In the wake of the Bank of England’s (BoE) Brexit analysis the mood towards Pound Sterling (GBP) soured, with investors spooked by signs that the UK economy is not prepared for a no-deal eventuality.
BoE Governor Mark Carney warned that many businesses are not ready for the prospect of the UK leaving the EU without a deal, indicating the potential risks that the economy faces.
This limited the impact of a better-than-expected uptick in UK mortgage approvals, even though signs point towards greater household confidence.
October’s net consumer credit data also discouraged investors as the headline figure fell short of forecast at 0.9 billion.
With signs pointing towards the BoE leaving interest rates on hold for some time to come the upside potential of the Pound Sterling to Euro (GBP/EUR) exchange rate proved limited.
Tightening German Labour Market Encourages Euro (EUR) Confidence
A surprise dip in the German unemployment rate for November gave the Euro (EUR) a boost, meanwhile.
As the labour market tightened, with unemployment falling from 5.1% to 5.0%, this encouraged greater confidence in the outlook of the Eurozone’s powerhouse economy.
Even though recent German data has proved less encouraging in nature this uptick helped to take some pressure off EUR exchange rates this morning.
A modest improvement in Eurozone business confidence also offered investors cause for confidence, with the index strengthening from 1.01 to 1.09 on the month.
Bert Colijn, Senior Economist at ING, noted:
‘Contrary to the PMI released last week, industrial sentiment painted a slightly brighter picture of the manufacturing environment than in October. Confidence increased as expectations of production in the months ahead improved and production in recent months was also more positively assessed by manufacturers.’
However, coupled with confirmation that Eurozone consumer confidence continued to deteriorate in November this left the Euro on a weaker footing.
All in all, signs still point towards the currency union remaining under some degree of economic pressure in the months ahead, especially in the face of elevated global trade tensions.
Weaker German Inflation Forecast to Drag Down Euro (EUR) Exchange Rates
However, the latest German consumer price index looks set to weigh down EUR exchange rates this afternoon.
Forecasts point towards the annual inflation rate easing from 2.5% to 2.4% in November, with monthly inflation holding steady at 0.2%.
This relative softening would give the European Central Bank (ECB) fresh incentive to leave interest rates on hold for longer.
A weaker showing here would not bode well for Friday’s Eurozone CPI data, putting further pressure on the Euro.
If the Eurozone inflation rate dips from 2.2% to 2.0% as forecast this could weigh heavily on the single currency, giving the GBP/EUR exchange rate a fresh boost.
As long as ECB policymakers see reason to doubt the sustainability of inflationary pressure the appeal of the Euro looks set to diminish.