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Euro Pound Sterling (EUR/GBP) Exchange Rate Muted as Anticipation Builds for German Inflation Data

Euro Currency Forecast

Euro Pound Sterling (EUR/GBP) Exchange Rate Looks for Boost From Steady Inflation Data

Ahead of August’s German and Eurozone consumer price index data the Euro to Pound Sterling (EUR/GBP) exchange rate remained under pressure.

However, as forecasts point towards the headline inflation rate remaining steady on the year this could offer the Euro (EUR) a fresh boost against its rivals.

As long as inflation within the currency union continues to match or run above the European Central Bank’s (ECB) 2% target this should give policymakers incentive to adopt a more hawkish outlook.

If markets see a greater likelihood of the ECB raising interest rates sooner rather than later the mood towards the single currency could improve further.

The steady nature of August’s German unemployment data gave EUR exchange rates additional support on Thursday morning.

Brexit Optimism Weighs Heavily on EUR/GBP Exchange Rate

The Euro to Pound Sterling (EUR/GBP) may struggle to find any fresh momentum, however, if markets maintain a more optimistic outlook on Brexit.

After unexpectedly positive comments from chief EU negotiator Michel Barnier on Wednesday afternoon demand for Pound Sterling (GBP) increased sharply.

Barnier’s statement that the EU ‘is prepared to offer Britain a partnership such as there never has been with any other third country’ left the EUR/GBP exchange rate in a sharp slump, as markets rapidly reassessed the odds of a no deal Brexit.

However, as economists at RBC noted:

‘We, however, stress that even if there is a deal struck between the EU and the UK, an even tougher hurdle will be to get any deal through the UK House of Commons – which at present seems to have moved down the ladder of concerns. ‎

‘This is particularly true as any deal is unlikely to see the EU make any material concessions, as Barnier also highlighted yesterday when he stressed the importance of the integrity of the single market.’

As the initial impact of Barnier’s comments fade GBP exchange rates look vulnerable to decline unless there are signs of more substantial progress towards a final deal.

Italian Budget Tensions to Limit Euro Pound Sterling (EUR/GBP) Exchange Rate Potential

Rising tensions between Italy and the EU may limit the upside potential of the Euro to Pound Sterling (EUR/GBP) exchange rate in the days ahead.

With the Italian government set on a collision course with EU budget rules over its spending plans the threat of a fresh Eurozone crisis still hangs over the Euro.

Unless political tensions show signs of easing the appeal of the single currency could remain muted, as developments in Italy have the potential to discourage ECB policy action.

Next week’s finalised raft of Eurozone manufacturing and services PMIs are unlikely to give the single currency any particular boost, with no change from the initial reading forecast.

However, signs of resilience within the Eurozone economy could still offer the Euro to Pound Sterling (EUR/GBP) exchange rate a fresh leg up.