Euro Pound Sterling (EUR/GBP) Exchange Rate Gains Ease as German Exports Stagnate
As German exports stagnated on the month in June this left the Euro to Pound Sterling (EUR/GBP) exchange rate on a narrow trend, underlining market worries over the domestic outlook.
Confidence in the underlying health of the Eurozone’s powerhouse economy remains limited, even though June’s trade surplus still bettered forecast to widen to 21.8 billion.
A recent run of underwhelming German data suggests that international trade tensions are weighing on the economic outlook.
This limits the potential for Germany, and the wider Eurozone, to recover the momentum lost at the start of the year, keeping the Euro (EUR) under a degree of pressure.
However, markets still have some hope that German growth may pick up in the months ahead in spite of the threat of a US trade war.
As Carsten Brzeski, economist at ING, noted:
‘The long series of one-offs explaining the monthly, often highly volatile, ups and downs of German macro data since the start of the year has further complicated things. Just think of the harsh winter weather, strikes, timing of Easter and long weekends. For now, the only thing that is for sure is that the economy has lost its stellar performance but this does not mean at all that it has become an underperformer. Complexity does not mean failure.’
Brexit Uncertainty Continues to Support EUR/GBP Exchange Rate
While concerns remain over the rising odds of a no deal Brexit this failed to keep the Euro to Pound Sterling (EUR/GBP) exchange rate on a bullish run.
Pound Sterling (GBP) found a floor on Tuesday morning thanks to a better-than-expected uptick in the Halifax house price index, which saw an increase of 1.4% on the month in July.
This helped to limit the downside potential of GBP exchange rates, although lingering political uncertainty continues to weigh on demand for the Pound.
Until markets receive reassurance that the UK and EU are still on track to agree a deal the Pound is likely to remain under pressure.
Although forecasts point towards a stronger showing from Friday’s UK gross domestic product data this may not be enough to shore up GBP exchange rates for long.
Euro Pound Sterling (EUR/GBP) Exchange Rate Vulnerable Ahead of ECB Economic Bulletin
The Euro to Pound Sterling (EUR/GBP) exchange rate may come under increased pressure on the back of the latest European Central Bank (ECB) Economic Bulletin.
If the report highlights a greater sense of caution within the central bank this could prompt investors to pile out of the single currency.
With the ECB looking set to leave interest rates on hold for some time yet to come the upside potential of EUR exchange rates remains limited.
A more optimistic Economic Bulletin may offer the Euro a fresh rallying point, however, if markets see reason to bet on the ECB taking a hawkish outlook sooner rather than later.
Any further deterioration in global trade conditions could limit the potential for further Euro to Pound Sterling (EUR/GBP) exchange rate gains in the near term.