Update 16:43 BST 25/07/2019:
When the European Central Bank (ECB) published its July policy decision, investors briefly sold the Euro (EUR) even lower, causing the Pound Sterling to Euro (GBP/EUR) exchange rate to hit a new monthly high of 1.1240.
However, investors were surprised by ECB President Mario Draghi’s less dovish than feared tone during the following press conference.
Rather than focus his comments on concerns about the Eurozone’s slowing manufacturing sector, he showed confidence that the bloc’s strong job market would keep the economy steady.
The bank signalled that monetary policy easing was likely as soon as September, but the bank was not unanimous in signalling that there would be a rate cut. This slightly doused dovish expectations and helped the Euro (EUR) to recover slightly from its worst levels.
Pound to Euro Exchange Rate Trends Near Best Levels as Pound Holds Rebound
Following weeks of mixed movement, the Pound Sterling to Euro (GBP/EUR) exchange rate could be in for a week of strong gains. The Pound (GBP) has rebounded and has been easily able to hold against the Euro (EUR) due to European Central Bank (ECB) jitters.
Last week saw GBP/EUR briefly slump to its worst levels all year, 1.1058, before rebounding and closing the week near the level of 1.1142.
Despite concerns about a new Boris Johnson government in the UK, GBP/EUR has continued to rebound. At the time of writing today, GBP/EUR was trending just below a high of 1.1220 – which was the pair’s best level since the 21st of June.
Investors are hesitant to buy the Euro ahead of today’s major ECB policy decision. The bank is expected to indicate how dovish it will be in the coming months which could be hugely influential for the Euro.
Pound (GBP) Exchange Rate Rebound Runs Out of Steam as Brexit Fears Persist
In the middle of the week, investors bought the Pound back from its cheapest levels in bulk as investors awaited a new era for British politics.
A long period of stagnant uncertainty came to an end as Boris Johnson won the Conservative Party leadership contest and became Britain’s new Prime Minister. Investors reacted with some profit-taking buying for the Pound.
However, analysts widely expected that the Pound’s recovery would not be significant, as the perceived chances of a hard Brexit or worst-case scenario no-deal Brexit have worsened under a Boris Johnson government.
As Johnson filled his government cabinet positions with prominent hard Brexit supporters, the Pound’s rebound came to an end and investors were hesitant to make big moves on the British currency amid Brexit uncertainty.
Euro (EUR) Exchange Rates Unappealing Ahead of European Central Bank (ECB) Decision
The Euro has been among the weaker major currencies this week, as the latest Eurozone data continues to disappoint investors and indicate that the Eurozone economy is still not seeing much of a bounce back from the slowdown seen earlier in the year.
Yesterday’s Eurozone PMI projections for July from Markit came in largely even lower than expected, which served as the latest sign of concern for Germany’s economy in particular.
Germany’s manufacturing projections was heavily concerning, unexpectedly coming in with a deep contraction of 43.1.
Today’s German business confidence data from Ifo also fell short in every major print, showing that confidence in Germany was weaker than markets expected.
Recent Eurozone data has only made investors more anxious that the European Central Bank (ECB) could become even more dovish in upcoming policy decisions.
Pound to Euro (GBP/EUR) Exchange Rate Anticipates European Central Bank (ECB)
By far, the biggest event for the Pound to Euro (GBP/EUR) exchange rate before markets close for the week, will be this afternoon’s European Central Bank (ECB) policy decision.
While most analysts do not expect the ECB will cut Eurozone interest rates just yet, recent Eurozone data has made more investors bet that a rate cut today is possible.
A rate cut from the ECB today would still be seen as a fairly big surprise, and would send the Euro plummeting.
If the ECB simply signals more dovish monetary policy is on the way later in the year, as expected, the Euro is still likely to keep seeing weak movement, though the reaction may be more subdued.
On the other hand, if the bank surprises investors with a more confident tone on the Eurozone economy than expected, the Euro could rebound and push GBP/EUR back lower again.
Pound investors will remain focused on UK politics and the early days of the Boris Johnson government, as well as how it will handle its Brexit plans and stances.
The Pound to Euro (GBP/EUR) exchange rate will otherwise be anticipating next week’s key Eurozone growth and inflation data.