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GBP/EUR Exchange Rate Climbs on Euro Weakness
At the time of writing, GBP/EUR is trading at €1.1633, having recouped early morning losses. The Euro sank against several peers midweek, subdued by a disappointing German trade balance and a risk-on mood. As the European session opened, Germany’s trade balance revealed a greater fall than expected, from €25.3bn in May to €20.4bn in June. The release marked the smallest surplus since October, as imports grew and exports waned; analysts attributed the fall to weaker demand from the US for German goods.
Following the release, the IFO Institute remarked: ‘The order shortage in Germany has worsened and is a major obstacle for the economy’; Bundesburg Bank added that ‘The spell of weak demand has not yet been fully overcome... industrial activity is likely to improve only slowly.’
At the same time, industrial production in the bloc’s largest economy exceeded expectations, printing at 1.4% rather than the 1% forecast. Yet the data failed to offset EUR headwinds, which intensified as a risk-on mood took hold. While the single currency is not considered such a safe investment as the US Dollar (USD) or the Japanese Yen (JPY), it is generally preferred over such currencies as the Pound (GBP) or the Australian Dollar (AUD) during times of risk aversion. When risk appetite increases, demand for the Euro wanes. Even relative weakness in the US Dollar failed to boost the single currency, despite its strong negative correlation with EUR. Generally, as ‘Greenback’ sentiment sours, the Euro trends higher.
Pound (GBP) Gains Capped amid Central Bank Uncertainty
The Pound struggled to climb on Wednesday, yet firmed against the Euro as risk appetite improved. Also lending GBP marginal support was fresh housing data for the month of July: yesterday’s data from mortgage lender Halifax showed that mortgage rates are coming down.
Amanda Bryden, Halifax's head of mortgages, explained: ‘Last week's Bank of England base rate cut, which follows recent reductions in mortgage rates, is encouraging for those looking to remortgage, purchase a first home or move along the housing ladder.’
Moreover, Nathan Emerson (NYSE:EMR), chief executive of Propertymark, said:
‘It is extremely positive to see further growth within the housing sector, especially following what has been a tough time across the last few years for consumers.’
Nevertheless, the prospect of further interest rate cuts from the Bank of England (BoE) applied some pressure to Sterling exchange rates. While the Federal Reserve also seems to be moving towards a less hawkish outlook, other central banks remain committed to keeping interest rates on hold for longer, casting the BoE in a dovish light.
GBP/EUR Exchange Rate Forecast: US Data in Focus?
The Pound Euro exchange rate may trade upon external factors today, given a lack of significant data from both the UK and the Eurozone. Instead, markets may turn to the latest jobless claims data from the United States for trading stimulus. If jobless claims sank in the world’s largest economy last week, the ‘Greenback’ could enjoy tailwinds, consequently depressing the single currency. EUR weakness is likely to support an uptrend in the Pound Euro exchange rate; yet GBP may face its own pressures as traders speculate over the BoE’s likely monetary policy trajectory. If market mood sours, Sterling demand could weaken.
This content was originally published on ExchangeRates.org.uk
