Although the German GfK consumer confidence index showed an improvement on the month this was not enough to prevent the Pound Euro exchange rate trending higher.
While the modest uptick from 10.6 to 10.8 appears to bode well for the outlook of the Eurozone’s powerhouse economy the mood towards the single currency remained distinctly bearish.
Even so, the downside potential of the Euro was limited by steady Eurozone loan growth, with analysts at Danske Bank noting:
‘In June, lending to households and non-financial corporations continued their upward trend, meaning the ECB’s accommodative monetary policy is feeding through to the private sector. This should eventually generate higher inflation but the ECB is being challenged currently by a stronger euro, which is a strong headwind to inflation.’
Investors are still likely to remain jittery in anticipation of Friday’s German consumer price index report, though, which could further undermine the odds of the European Central Bank (ECB) taking a hawkish policy stance in the coming months.
If inflationary pressure showed signs of easing in July this could boost the GBP EUR exchange rate ahead of the weekend, given the ECB’s already stated doubts over the sustainability of the recent uptick in Eurozone inflation.
On the other hand, if the German CPI surprises to the upside this could offer the Euro a strong rallying point.
Pound May Weaken on Softer Consumer Confidence Index
As the second quarter UK gross domestic product report showed a slight improvement on the quarter to rise from 0.2% to 0.3% the appeal of the Pound strengthened.
While the details of the report were not entirely encouraging, given that the service sector remains the sole driver of domestic growth, investors still piled back into Sterling.
As the economy remains in a relatively sluggish state, however, the likelihood of the Bank of England (BoE) adopting a more hawkish policy outlook in the near future remains distinctly slim.
The limited odds of any imminent action from the BoE are likely to maintain the downside bias of the Pound, leaving the GBP EUR exchange rate vulnerable to fresh weakness.
Nevertheless, if the UK GfK consumer confidence survey points towards a recovery in domestic sentiment this could shore Sterling up tomorrow.
Any fresh deterioration in confidence, though, could weigh heavily on GBP exchange rates thanks to the significant role of consumer spending in supporting the strength of the UK economy.
Current GBP EUR Interbank Exchange Rates
At the time of writing, the Pound Euro exchange rate was trending higher at 1.1208. Meanwhile, the Euro Pound exchange rate was slumped in the region of 0.8921.