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Pound Sterling to Euro Exchange Rate Struggles to Climb as Eurozone Optimism Shows Signs of Recovery

European Central Bank

Pound to Euro Exchange Rate Fails to Return to Best Levels on Optimism in Eurozone Outlook

The Pound Sterling to Euro (GBP/EUR) exchange rate saw modest gains on Monday, but due to some underwhelming UK data and signs of optimism in the Eurozone outlook investors were hesitant to buy the pair too much.

After opening last week at the level of 1.1520, GBP/EUR climbed until the middle of the week when it touched on an impressive high of 1.1717. This was the best GBP/EUR level in over a year – since May 2017.

GBP/EUR slipped back from those highs towards the end of the week but still sustained notable gains overall, closing the week at the level of 1.1619. GBP/EUR trended closely to the level of 1.1647 at the time of writing today.

It marked the first time GBP/EUR had trended above the key level of 1.16 for an extended period of time since the first half of 2017.

Sterling (GBP) was more able to avoid losses today due fresh Brexit hopes, but hopes for an improving Eurozone economic outlook supported the Euro (EUR).

Pound (GBP) Exchange Rates Benefit from Brexit Speculation

For most of last week, investors bought the Pound on hopes that UK MPs would vote against a no-deal Brexit, even in the event that the government’s Brexit deal was defeated in Parliament again.

If MPs vote against a no-deal Brexit, they will be given a vote on whether or not to extend the Brexit process.

On Monday, investors continued to buy the Pound due to rising hopes that the government’s Brexit plan was seeing stronger support domestically.

Signs that the UK Labour Party was pushing harder for a second referendum also lightened no-deal Brexit fears and bolstered Sterling.

The Pound’s potential for gains was limited though, as the latest UK construction PMI unexpectedly contracted at 49.5. This, as well as a slightly stronger Euro, prevented GBP/EUR from climbing to last week’s highs.

Euro (EUR) Exchange Rates Avoid Losses as Investor Confidence Edges Higher

Towards the end of last week, some stronger than expected German data combined with signs of stronger economic activity caused speculation that the Eurozone’s economic outlook may have taken a turn for the positive.

It follows an extended period of slowdown for the Eurozone economy. Despite these optimistic signs, analysts still speculate the slowdown could continue for much of this year.

Nonetheless, investors continued to become a little more optimistic about the Eurozone economic outlook today and this helped the Euro to avoid steeper losses versus the Pound.

According to analysts at Sentix:

‘It is too early to give the all clear.

However, a ray of hope emerges when looking at the economic expectations.’

Pound to Euro (GBP/EUR) Exchange Rate Outlook to be influenced by Services and Retail Data

Anticipation for next week’s key UK Parliament Brexit votes is likely to keep the Pound from seeing sharp movements in the coming days, so the Pound to Euro (GBP/EUR) exchange rate is likely to be driven by upcoming Eurozone data instead.

Tuesday will see the publication of some of this week’s most influential Eurozone ecostats, including the bloc’s final February services and composite PMI stats. The Eurozone’s January retail sales results are likely to be influential as well.

If the data beats expectations it could give the Euro more solid support and push GBP/EUR lower in the coming days.

Looking ahead, Wednesday’s German construction PMI and of course Thursday’s European Central Bank (ECB) policy decision will also be potentially influential for the Euro.

As for the Pound, unless there are surprising Brexit developments in the coming sessions it is also possible that tomorrow’s UK services data or an upcoming speech from Bank of England (BoE) Governor Mark Carney may influence the Pound to Euro (GBP/EUR) exchange rate.