Pound Sterling Euro (GBP/EUR) Exchange Rate Muted as Eurozone Confidence Tumbles
UPDATE: The Pound Sterling Euro (GBP/EUR) exchange rate remained muted on Thursday afternoon. This left the pairing trading at around €1.0982.
The Pound remained under pressure after the European Union’s chief Brexit negotiator, Michel Barnier said the UK had not shown any clear signs of willingness to break the impasse in Brexit talks.
The bloc has said that it is ‘unlikely’ the UK and EU will be able to reach a free trade agreement. However, London is holding out hope that something can be secured by September.
Meanwhile, the Euro struggled to make gains after Eurozone consumer confidence fell back in July.
The rise in confidence came to an abrupt halt due concern about the recovery in domestic demand. This saw confidence fall back to -15 from -14.7 after two consecutive months of recovery.
Commenting on this, ING’s Eurozone Senior Economist, Bert Colijn wrote:
‘As this release does not provide further detail until next week, it is not yet clear what has caused the dip in confidence this month. It is perhaps caused by concerns about new local outbreaks across the eurozone or because concerns about unemployment in the year ahead are rising as hopes of a V-shaped recovery fade. The current level of confidence is better than during most recessions, but similar to pessimism experienced in the dot-com crisis. If confidence were to move sideways for a while, this would normally translate to a weak household consumption recovery.’
Pound Sterling Euro (GBP/EUR) Exchange Rate Slides as German Confidence Rallies
The Pound Sterling Euro (GBP/EUR) exchange rate slumped by around -0.3% on Thursday morning. This left the pairing trading at around €1.0977.
The single currency made gains during today’s session after data revealed German consumer confidence improved more than expected in August.
Sentiment rallied, aided by a temporary cut in VAT as part of the German government’s stimulus package to aid the economy’s recovery from the coronavirus crisis.
GfK’s data revealed sentiment rallied, rising to a better than expected -0.3 heading into August. This followed a revised -9.4 in July.
This supported the Euro as this was the third monthly increase in a row, and GfK’s researcher Rolf Buerkl noted the development in this measure during the pandemic resembled a V-shaped recovery.
Commenting on the data, Buerkl said:
‘There is no doubt that the reduction in value-added tax has contributed to the extremely positive progress. It is clear that consumers are looking to make major purchases earlier than planned, which will help boost spending this year.’
However, he did note that this positive effect of the VAT cut could be temporary. Once the reduced VAT expires in January 2021, consumers could scale back purchases.
Pound (GBP) Struggles as UK Heads to Final Day of Brexit Talks
Sterling suffered losses against the single currency today as Britain headed towards the final day of Brexit negotiations with the European Union.
Traders will be closely monitoring headlines today as they look for clues as to whether or not London will walk away from Brussels with a deal.
GBP fell as media reports have hinted the country has given up hope on reaching a deal, Marshal Gittler, head of investment research at BDSwiss Group noted:
‘[Investors should] watch the tone of the statements coming out of today’s final meetings to see if they are of a conciliatory or confrontational nature.’
Pound Euro Outlook: PMI Surveys in Focus This Week
Looking ahead to this afternoon, the Euro (EUR) could make further gains against the Pound (GBP) as traders await the latest Eurozone confidence data.
If July’s flash consumer confidence data rises, following this morning’s upbeat German confidence, it will boost the single currency.
However, traders will be eyeing the latest flash PMI surveys on Friday morning. This could offer the Euro further support as both the German and Eurozone services PMIs are expected to rebound and post growth.
Although, Sterling could claw back some losses if data reveals that both Britain’s services and manufacturing PMIs returned to growth in July. If both sectors return to growth it could leave the Pound Euro (GBP/EUR) exchange rate flat.
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