While German producer prices showed a bullish uptick in September this was not enough to boost the Euro Pound exchange rate ahead of the weekend.
Confidence in the single currency generally diminished as Spain moved closer to suspending Catalan autonomy and assuming direct rule over the region, provoking market jitters.
Even though the diminishing prospect of Catalonia successfully breaking away from the rest of Spain has encouraged investors the prospect of any further escalation in tensions still poses a significant headwind to EUR exchange rates.
Developments over the course of the weekend could give the Euro fresh cause for weakness, particularly if there are any signs of violent opposition to the Spanish government’s move.
Further volatility is likely for the single currency in the coming week as markets brace for the latest European Central Bank (ECB) monetary policy meeting.
Investors are keen to hear the ECB’s latest assessment of the domestic economy, even though the odds of any major shift towards hawkishness are distinctly slim.
If policymakers continue to talk down the likelihood of interest rates rising from their current lows for the foreseeable future then the upside potential of the EUR GBP exchange rate is likely to remain limited.
However, if the central bank does begin to taper its quantitative easing program this could encourage investors to pile back into the single currency once again.
Temporary Easing in Brexit Worries Boosts Pound
The mood towards the Pound improved slightly in the wake of a relatively positive EU leaders’ dinner on Thursday night.
Suggestions that the EU could announce that it is beginning to make preparations for the next phase of talks limited the sense of Brexit-based uncertainty that has weighed on Sterling in recent days.
Even so, as James Knightley, Chief International Economist at ING, noted:
‘There is going to be no further progress on negotiations until the UK is willing to bend on the divorce payment. €20bn in payments for the two year transition period doesn’t cut it for the EU with reports suggests that an extra €20bn is likely to be needed (at least) before the EU is willing to talk future arrangements.’
Tangible progress is still somewhat lacking, however, which could keep GBP exchange rates under some degree of pressure over the coming months.
Unless there are signs of the Conservative government starting to adopt a more unified approach towards Brexit negotiations the Pound may struggle to find any major traction against its rivals.
If the third quarter UK gross domestic product report demonstrates greater signs of resilience within the economy, though, this could keep the EUR GBP exchange rate on a weaker footing.
Current EUR GBP Interbank Exchange Rates
At the time of writing, the Euro Pound exchange rate was trending lower in the region of 0.8984. Meanwhile, the Pound Euro exchange rate was making gains around 1.1131.