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Pound Sterling to Euro Exchange Rate Nears Monthly Best but Brexit Uncertainty Remains

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Pound to Euro Exchange Rate Continues to Climb as Euro Investors Await Data

Hopes for the UK government to compromise for a softer Brexit continue to provide the main support for the Pound Sterling to Euro (GBP/EUR) exchange rate this week, but the Euro (EUR) is also being weakened by domestic news.

Following last week’s relatively modest GBP/EUR gains on the back of weak Eurozone data, this week’s gains are much more notable so far.

GBP/EUR has climbed from the week’s opening levels of 1.1575 and has gained almost a cent. At the time of writing on Thursday, GBP/EUR was trending around the level of 1.1662 – its best levels since the beginning of April.

The Pound’s (GBP) ability to hold these gains until the weekend partially depends on whether or not Brexit speculation remains optimistic until then. If there are no solid Brexit developments, or doubts of a deal begin to prevail again, GBP/EUR may lose some recent gains.

Pound (GBP) Exchange Rate Outlook Little Changed despite Brexit Hopes

Speculation that the UK government is getting closer to reaching some kind of compromise Brexit deal in cross-party talks with Labour has been the primary cause for Pound gains this week.

According to comments from Prime Minister Theresa May yesterday:

‘We’ve been having constructive, meaningful talks which are continuing.

… We know that we need to end this uncertainty and do it as soon as possible and I hope a deal can be done. We certainly approach this with an open mind.’

However, as there is no solid news that any Brexit deal is actually close, the Pound’s outlook is overall unchanged, and the currency could just as easily shed these gains if talks unravel again.

This week’s UK data has done little to influence the outlook either. Britain’s April manufacturing PMI beat expectations yesterday but the details contained uncertainty about the outlook for Britain’s factory sector.

Euro (EUR) Exchange Rates Still Lack Enough Support to Recover

While most of this week’s Eurozone data so far has been fairly optimistic, a couple of key prints published today have left investors hesitant to become more optimistic about the Eurozone’s economic outlook again just yet.

This morning’s Eurozone data included March’s German retail sales results, as well as April’s final Eurozone manufacturing PMIs from Markit.

While Germany’s monthly retail sales figure was -0.2% rather than the predicted -0.4%, the yearly figure unexpectedly slumped to -2.1%.

The manufacturing data was similarly mixed. France’s manufacturing sector unexpectedly avoided contraction with a stagnant result of 50, and the Eurozone’s overall figure was a smaller than forecast contraction of 47.9.

However, Germany’s latest key manufacturing print was even worse than projected, coming in at a concerning 44.4.

This data left investors concerned about the strength of the Eurozone’s factory sector amid the global economic slowdown.

Pound to Euro (GBP/EUR) Exchange Rate Investors Anticipate Eurozone Inflation Stats

As it stands, the Pound to Euro (GBP/EUR) exchange rate is on track to sustain notable gains this week. This is despite the lack of solid Brexit developments, and most of the week’s Eurozone data being better than expected.

Still, there is potential for the Pound to shed all its gains before markets close for the week, if Brexit speculation takes a turn for the more bearish.

Similarly, if tomorrow’s Eurozone inflation rate data beats expectations it could offer the Euro some strength and help it to push GBP/EUR lower again.

Eurozone inflation is forecast to have improved in April. As Germany’s latest inflation data was much stronger than expected earlier in the week, investors will be especially disappointed if the Eurozone inflation figure falls short.

With Brexit and Eurozone data in focus for the rest of this week, Eurozone retail sales and UK growth data could drive the Pound to Euro (GBP/EUR) exchange rate next week.