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Pound Euro Exchange Rate Weakens Ahead of Eurozone Confidence Index

Euro Currency Forecast

Although the Pound trended higher on the back of April’s unexpectedly strong retail sales figures it ultimately struggled to maintain its gains for long.

With inflation set to accelerate further over the coming months and real wages falling consumers are likely to increasingly rein in their spending.

As the Bank of England (BoE) is likely to maintain its neutral bias and leave interest rates on hold for the foreseeable future the upside potential of Sterling remains somewhat limited.

Altogether the outlook for the UK economy remains relatively muted, given the significant uncertainty of Brexit that continues to hang over the outlook.

Downside pressure could mount on the Pound if Tuesday’s public sector net borrowing figure proves discouraging.

Forecasts point towards an uptick in new government debt, a result which would indicate a widening of the domestic deficit and weaken the appeal of Sterling further.

On the other hand, if the government borrowed less in April this could give investors fresh reason to support the GBP EUR exchange rate.

With the Conservatives still looking on course to secure a larger majority in the snap general election the Pound is unlikely to face any particular pressure from political developments in the near term.

However, if there are any signs that the momentum is shifting away from Theresa May GBP exchange rates could be vulnerable to renewed jitters.

As Greek MPs voted in favour of the latest raft of creditor-mandated tax reforms and pension cuts last night the mood towards the Euro picked up.

Even so, the Hellenic republic remains in a less-than-robust state after falling back into a state of recession in the first quarter.

Michael Every, Senior Asia-Pacific Strategist at Rabobank, noted:

‘The Greek economy, secondary to this giant game of financial pass-the-parcel, looks unlikely to benefit significantly from yet more public-spending cuts, at least based on the track record that these have had so far. Nonetheless, crisis postponed again, which is about the best we can usually hope for post-GFC – especially given politics is happily filling the gap where it can.’

Demand for the single currency could strengthen further if May’s Eurozone consumer confidence index is revised higher, although the measure is likely to remain in negative territory at this juncture.

As concerns over the future integrity of the Eurozone have eased in the wake of Emmanuel Macron’s victory in the French presidential election the underlying trend of the Euro has remained more bullish.

Nevertheless, with the European Central Bank (ECB) continuing to talk down the prospect of any imminent end to its loose monetary policy the single currency may struggle to extend any particular gains against the Pound for long.