Euro to Pound Exchange Rate Surge Limited by Eurozone Economic Uncertainty
Despite persisting German recession fears and uncertainty ahead of next week’s European Central Bank (ECB) policy decision, the Euro to Pound Sterling (EUR/GBP) exchange rate still surged again today.
Since sliding from the level of 0.9100 to 0.9034 last week, EUR/GBP has quickly regained all of those losses and then some, due to the latest market panic over UK politics and Brexit.
At the time of writing on Tuesday, EUR/GBP was trending near the level of 0.9126. This put the pair a little closer to the levels seen in August.
However, if Eurozone data this week disappoints investors, the chances of the Euro (EUR) sustaining further gains against Sterling (GBP) will be limited.
Euro (EUR) Exchange Rates Lack Drive amid Expectations for ECB Stimulus
Due to recent weakness in Eurozone economic data, particularly from Germany, fears have risen that the Eurozone economy will continue to experience prolonged economic weakness.
Yesterday’s Eurozone manufacturing PMIs from August, which showed contractions in major prints as expected, did little to change this.
Partially brought on by the US-China trade war, the Eurozone’s weakening manufacturing sector has led to concerns that Germany could be headed towards recession. Speculation for European Central Bank (ECB) stimulus has risen as a result as well.
The ECB will hold its September policy decision next week, and markets are betting that the bank could cut rates as well as reintroduce quantitative easing (QE) stimulus measures.
Pound (GBP) Exchange Rates Plummet as UK Snap Election Speculation Dominates Headlines
Since yesterday, the Brexit-embattled Pound has been plunging again, as rising no-deal Brexit fears are joined by jitters that Britain could be headed for a snap general election in October.
UK Prime Minister Boris Johnson has indicated that if Conservative Party rebels attempt to block a no-deal Brexit during parliament’s reconvening this week, he could plan to announce a general election in October.
There are fears that if an election is announced, it could be delayed past the 31st of October to force a no-deal Brexit this way as well. No-deal Brexit and a general election are both majorly negative for the Pound outlook.
According to Andrew Milligan, Head of Global Strategy at Aberdeen Standard Investments:
‘The next 48 hours will determine whether or not this high risk strategy from the Prime Minister has paid off, or whether or not he has been corralled into a corner, or conversely still there a several options where we are simply going for the uncertainty of an election mid-October.’
Euro to Pound (EUR/GBP) Exchange Rate to be dominated by Brexit-Inspired Volatility
Euro investors will continue to await next week’s European Central Bank (ECB) policy decision, and key datasets due this week could slightly influence ECB bets if they surprise investors.
Eurozone services and composite PMIs and especially retail sales stats due tomorrow, as well as Friday’s Eurozone growth rate data, could be highly influential if they are surprising.
However, while these stats and ECB speculations will drive Euro movement over the next week, the Euro to Pound (EUR/GBP) exchange rate’s reactions to UK political and Brexit developments are likely to be even more significant.
There is potential for big unexpected Pound movements almost every day this week, as MPs clash over no-deal Brexit and potentially a general election in parliament, ahead of the parliamentary prorogation next week.
Due to the expectation for huge political developments, the Euro to Pound (EUR/GBP) exchange rate’s movement will be driven mostly by this, and upcoming UK data may be totally overshadowed.