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Increased Chance of July ECB Rate Cut Leaves Pound Sterling Euro (GBP/EUR) Exchange Rate Muted

Pound Euro (GBP/EUR) Exchange Rate Flat as Probability of ECB Cut Jumps to 60%

UPDATE: On Friday afternoon, the Pound Sterling Euro (GBP/EUR) exchange rate remained muted and the pairing is currently trading at an inter-bank rate of €1.1152.

The single currency was left dampened as the chance of a European Central Bank (ECB) rate cut increased.

Markets are now pricing in a 60% chance of a 10 basis point rate cut in July, compared to the 40% chance earlier in the week.

This left the pairing flat as central banks are launching a fresh round of policy easing to try and lift low inflation and tackle signs of an economic slowdown.

Commenting on the recent bearish shift, Rabobank Analyst Jane Foley said:

‘An ECB move would be more likely to have a shock impact […] A 25 basis point cut by the Fed is priced in.’

Pound Euro (GBP/EUR) Exchange Rate Muted as UK Budget Deficit Rises Faster than Expected  

The Pound Sterling Euro (GBP/EUR) exchange rate remained muted and the pairing is currently trading at an inter-bank rate of €1.1130.

On Friday, data revealed that the UK’s budget deficit is rising faster than expected as the government were forced to borrow more than £7 billion last month.

This is the largest June deficit in four years, suggesting the UK’s fiscal position could be weakened ahead of Brexit.

Sterling sentiment was left dampened as borrowing in June 2019 was £3.8 billion higher than 2018, as it rose to £7.2 billion.

Disappointing German PPI Leaves the Euro (EUR) Flat

Meanwhile, the German Producer Price Index (PPI) slumped by a worse-than-forecast -0.4% between May and June.

The single currency was left under pressure as this was the highest monthly contraction since December 2018.

Annual PPI edged up by a disappointing 1.2% despite forecasts suggesting a 1.4% rise.

This likely weighed on the Euro, leaving the pairing muted as this was lowest annual rise since December 2017.

Thursday: Higher than Forecast UK Retail Sales Buoy Sterling (GBP)

On Thursday Sterling rose against the Euro following better than expected UK retail sales.

Sales rebounded unexpectedly in June provided the Pound with a much-needed lift.

The Office for National Statistics (ONS) revealed that annual sales rose by a higher-than-forecast 3.8% and monthly sales jumped by 1% in June.

This unexpected strength likely helped reduce the risk that the UK economy shrunk during the second quarter.

Commenting on this, David Cheetham, Analyst from online broker, XTB said:

‘The resilience of the consumer in the face of ongoing political uncertainty is both surprising and admirable, suggesting that despite heightened levels of uncertainty people are keeping calm and carrying on.’

No-Deal Brexit Could Plunge UK into a Recession

On Thursday afternoon the pairing continued to edge up as MPs voted to stop the next Prime Minister from shutting down Parliament to force through a no-deal.

The amendment that blocks a suspension between 9 October and 18 December was voted for 315 to 274 votes.

Meanwhile, a report from the Office for Budget Responsibility (OBR) revealed that the UK would plunge into a recession in the event of a no-deal Brexit.

The OBR also warned that a £30 billion black hole would be left in the public finances.

Added to this, the recent weak data from June could even suggest the UK has already entered a ‘full blow recession.’

In its report, the fiscal watchdog warned:

‘Surveys were particularly weak in June, suggesting that the pace of growth is likely to remain weak. This raises the risk that the economy may be entering a full-blown recession.

‘The fiscal risks posed by recessions depend on their depth and persistence, the sectors most deeply affected, and the pace at which the economy subsequently recovers.’

Pound Euro Outlook: Will GBP Slide as New PM Announced?

Looking ahead to the start of next week’s session, the Pound (GBP) could slide against the Euro (EUR) as the Conservative leadership contest comes to an end.

If frontrunner Boris Johnson is announced as the next Prime Minister, no-deal Brexit fears could cause Sterling to slide.

Meanwhile, on Tuesday the flash Eurozone consumer confidence is scheduled for release.

If confidence edges up higher than expected in July, it could cause the Pound Euro (GBP/EUR) exchange rate to slide.