ExchangeRates.org.uk - Weak data from both the UK and Germany – the Eurozone’s largest economy – further pressured the exchange rate. At the time of writing, GBP/EUR is trading at €1.1838, marginally below Tuesday’s levels. The Euro (EUR) struggled to climb on Wednesday as several economic and external factors weighed upon the single currency. As the European session opened, German consumer confidence missed forecasts, printing at –21.8 rather than the –19.8 expected: the release marked the first decline in five months as income expectations and economic prospects weakened.
Rolf Bürkl, consumer expert at NIM, said of the release: ‘The interruption of the recent upward trend in consumer sentiment shows that the path out of the consumer slump will be difficult and that setbacks can occur again.’
The data initiated a poor start to the session, while a subsequent uptrend in the US Dollar (USD) further pressured EUR. The Euro has a strong negative correlation with the ‘Greenback’, meaning strength in USD invariably dents morale amongst single currency investors. Recent USD strength is stemming from a general risk-off mood as well as the comparatively hawkish stance of the Federal Reserve. Remarking upon the Euro’s sluggish performance, analysts noted the likely impact of the French elections on Sunday. OCBC analysts Frances Cheung and Christopher Wong note remarked that traders are concerned regarding the potential fiscal direction far-right parties are taking:
‘Knee-jerk impact on EUR can vary but is likely to be skewed to the downside, unless outcome surprises with Macron’s Ensemble coalition winning a larger share. The other swing surprise that would be outright negative for EUR would be a >50% win for either the far right or leftist coalition.’
Pound (GBP) Faces Headwinds as Retail Data Disappoints
The Pound (GBP) traded in a variable range yesterday as June’s distributive trades data plummeted well below expectations and political uncertainty triggered central bank jitters. While distributive trades data isn’t generally a high-impact release, June’s significant tumble appeared to spook investors: the release printed at –24 rather than the 1 expected.
Alpesh Paleja, interim deputy chief economist at the CBI, commented upon the data: ‘Last month’s nascent recovery in sales proved to be short-lived, with retailers reporting a faster-than-anticipated decline this month. Unseasonably cold weather in June may have played a role, but it’s notable that internet retail sales fell sharply in our survey, too.’
Meanwhile, political uncertainty in the UK likewise undermined Sterling strength. Markets currently anticipate that the opposition Labour Party has the upper hand in parliamentary elections, although the spread of votes is hard to predict; the makeup of the next UK government will inevitably affect fiscal policy. Ahead of the UK’s general election next week, the Bank of England (BoE) is unable to comment upon its interest rate forecast or the performance of the British economy.
Speaking on the BoE’s position, Laura Suter, director of personal finance at AJ Bell, said: ‘It’s highly likely the Bank will want to wait to see the outcome of the election and the final economic plans before making that first cut. With no meeting in July, that means all eyes are now firmly on the August MPC meeting for our first potential cut to rates.’
GBP/EUR Forecast: Exchange Rate to Sink if Economic Sentiment Improves in the Eurozone?
The Pound Euro exchange rate is likely to trade upon trading stimuli from the Eurozone and the US today, amid a lack of significant UK data. Economic sentiment in the Euro area is expected to have improved in June, albeit marginally. If the data prints as expected – or higher – EUR/GBP may climb. On the other hand, if the US economy is confirmed to have grown by 1.3% last quarter, strength in the ‘Greenback’ could subdue the single currency, boosting the Pound Euro exchange rate. Elsewhere, a risk-off mood could depress GBP on Thursday. If markets turn bearish, Sterling is likely to weaken against EUR – though the currency could climb in other exchange rates.
This content was originally published on ExchangeRates.org.uk
