Euro to Pound Exchange Rate Surges Despite Decent UK Job Market Report
Tuesday’s UK job market results from May generally met expectations, though less new jobs were made than expected. Despite this though, the Euro to Pound Sterling (EUR/GBP) exchange rate has risen due to fresh concerns about the direction of the Brexit process.
Could EUR/GBP finally break out of range on concerning Brexit developments? EUR/GBP slipped slightly from 0.8842 to 0.8830 last week, but this week so far has recovered last week’s losses and briefly touched on a high of 0.8861 this morning.
While there has been a lack of fresh support in Euro (EUR) trade, the shared currency has benefited from broad Pound (GBP) weakness as Brexit concerns persist.
On top of Brexit developments, investors now anticipate Britain and the Eurozone’s final June Consumer Price Index (CPI) inflation rate results, due on Wednesday.
Euro (EUR) Exchange Rate Investors Anticipate Inflation Results Amid Lack of Drivers
While the Pound has remained pressured by Brexit fears this week so far, demand for the Euro hasn’t been particularly good either.
On Monday, the Eurozone’s May trade balance results were published and the surplus unexpectedly slipped from €16.7b to €16.5b. This was well below the expected €20.9b.
While the Eurozone’s trade surplus with the US actually continued to rise, this only reasserted to markets the importance of Euro-US trade relations and trade jitters worsened.
Investors are anxious about the potential impact that US trade tariffs and the US-China trade war could have on the Eurozone’s economy, particularly with export-heavy nations like Germany.
For now, the Eurozone’s economic outlook is clouded by these trade uncertainties as well as expectations for another year of caution from the European Central Bank (ECB), so investors are anticipating Wednesday’s Eurozone inflation results.
Pound (GBP) Exchange Rates Unappealing on UK Jobs Data and Brexit Jitters
The uncertainties and concerns of the Brexit process continue to put pressure on the Pound this week, as investors remain anxious about the stability of UK Prime Minister Theresa May’s leadership and her ability to deliver a softer Brexit.
On Monday evening, UK Prime Minister Theresa May’s Brexit white paper suffered a bill as she was pressured to make a concession to hard Brexit supporting Conservative backbenchers.
It followed high profile resignations last week, in protest of May’s Brexit white paper plan being seen as a softer Brexit than a hard Brexit.
The latest concession in the Brexit plan highlighted to markets the persistent fissures in the Conservative party and weighed on soft Brexit optimism, with investors concerned that May will continue to attempt to please hardline Brexit supporting backbenchers.
According to Jordan Rochester from Nomura:
‘The move in Sterling is pretty contained at this point but this [accepting of amendments] is being viewed by the market as a step towards a leadership contest,’
Britain’s May job market results generally met forecasts, but the employment change figure fell short. Sterling briefly weakened in reaction, but as investors digested the data it had no notable impact on the Pound outlook.
Euro to Pound Forecast: Inflation Rates Could Influence EUR/GBP Outlook
As of Tuesday, the Euro to Pound (EUR/GBP) exchange rate outlook remains subdued.
The Euro is pressured by a lack of hawkishness from the European Central Bank (ECB) and trade tariff fears, while the Pound’s appeal is limited by concerns that the Brexit deal will end up being more hardline than the UK government intended.
If Wednesday’s UK or Eurozone inflation data surprises investors though, EUR/GBP could see a shift in direction.
Britain’s June Consumer Price Index (CPI) report is forecast to have slowed month-on-month, but have risen from 2.4% to 2.6% year-on-year.
If the UK inflation rate figures fall short of expectations, the Pound could plunge as Bank of England (BoE) interest rate hike bets fall. BoE rate hike bets are already being weighed by Brexit uncertainties too.
The Eurozone’s inflation results are also likely to be influential if they surprise. If Eurozone inflation happens to beat expectations, the Euro to Pound (EUR/GBP) exchange rate outlook would rise as ECB rate hike speculation flares up again.