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Pound Euro (GBP/EUR) Exchange Rate Benefits from Growing Opposition to UK’s Internal Market Bill

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Eurozone Industrial Production Data Fails to Impact Pound Euro (GBP/EUR) Exchange Rate

A smaller-than-expected contraction in Eurozone industrial production failed to prevent the Pound Sterling to Euro (GBP/EUR) exchange rate from recovering ground.

The mood towards Pound Sterling (GBP) picked up at the start of the week as market jitters over Boris Johnson’s proposed Internal Market bill temporarily eased.

Increasing domestic opposition to the bill, which violates parts of the existing withdrawal agreement, offered investors reason to buy back into the weakened Pound.

Although it remains to be seen whether parliament will choose to vote down the bill this still encouraged hopes that relations between the UK and EU could recover in the weeks ahead.

However, as long as the threat of a potential no-deal scenario lingers the GBP/EUR exchange rate may stage any significant recovery from its recent six-month lows.

Signs of Weakening UK Labour Market Set to Weigh on GBP/EUR Exchange Rate

Even so, demand for the Pound could soon falter once again as markets brace for the latest raft of UK labour market data.

Forecasts point towards the unemployment rate picking up from 3.9% to 4.1% in July, in spite of the government’s furlough scheme encouraging businesses to retain their workforce.

With the labour market looking set to come under increasing pressure in the third quarter as government support withdraws any uptick in unemployment now could weigh heavily on the Pound.

Another decline in average earnings may also put a dampener on the GBP/EUR exchange rate as worries over the underlying health of the UK economy pick up.

Growing anticipation ahead of Thursday’s Bank of England (BoE) policy announcement equally looks set to keep the Pound from making any significant gains against its rivals in the near term.

Euro Vulnerable to Softening German Economic Sentiment

Support for the Euro (EUR), meanwhile, could fade further on Tuesday with the release of September’s ZEW economic sentiment index.

Forecasts point towards a decline in confidence on the month, dropping the index from 71.5 to 69.8 and leaving the single currency exposed to selling pressure.

Evidence that German economic sentiment soured this month may fuel fears that some of the economy’s earlier momentum has already started to fade.

If the Eurozone’s powerhouse economy fails to hold onto the initial bout of recovery seen in the wake of the Covid-19 crisis the single currency could falter.

With the risk of a second wave of infections rising any fresh signs of weakness within the Eurozone economy may drive the Euro to trend lower across the board.

On the other hand, an uptick in sentiment on the month would help to limit market concerns, increasing the pressure on the GBP/EUR exchange rate once again.