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Pound Sterling to Euro Exchange Rate Slumps on Reaction to Wednesday Stock Market Rally

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Pound to Euro Exchange Rate Lower as Investors Sell US Dollar (USD)

Despite climbing in the middle of the week as a brief boost in demand for safe haven currencies and the US Dollar (USD) weakened the Euro (EUR), the Pound Sterling to Euro (GBP/EUR) exchange rate tumbled on Thursday morning.

GBP/EUR has fluctuated since markets opened this week amid lighter trading volumes and Brexit jitters keeping pressure on Sterling.

Since opening the week at the level of 1.1106, a volatile GBP/EUR briefly climbed and touched on a high of 1.1211. This was the best GBP/EUR level since the first week of December.

GBP/EUR has since slipped back from those highs though, and on Thursday morning had fallen below the week’s opening levels. At the time of writing, GBP/EUR was trending near the level of 1.1087.

Demand for the Pound to Euro exchange rate has been driven largely by shifts in global risk-sentiment and the strength of the US Dollar (USD), rather than any domestic UK or Eurozone news.

In fact, with Brexit jitters persisting and the European Central Bank (ECB) continuing to predict slower Eurozone economic activity, the Euro’s Thursday gains are likely limited too.

Pound (GBP) Exchange Rates Fail to Find Fresh Support as Brexit Fear Persists

Investors have had little reason to buy the Pound (GBP) this week.

A chaotic December for UK politics and the Brexit process has left the British currency trending near its worst levels against many major rivals.

The Pound to Euro (GBP/EUR) exchange rate currently trend less than a cent above its worst levels all year, as Brexit fears keep pressure on the Pound and investors hesitate to buy it.

Investors fear that the UK could crash out of the EU without a deal, which would have a significant long-term negative impact on Britain’s economy.

This is because UK Parliament does not appear to support UK Prime Minister Theresa May’s Brexit deal and has thus far not shown any particular leaning to an alternative.

Euro (EUR) Exchange Rates Bolstered by US Dollar (USD) Weakness

With markets quieter over the festive holiday season, surprising fluctuations in a volatile US stock market have been influencing global foreign exchange market movement too.

Last week saw global stock markets plummet, and the US government also failed to push a funding bill through US Congress, causing a government shutdown.

This news left investors hesitant to take risks and bolstered demand for safe haven currencies like the US Dollar (USD). The Euro is the US Dollar’s biggest rival and the two currencies are often negatively correlated.

During Wednesday’s American session, the US Dollar was briefly bolstered by a surge in US stock market support.

However, the rebound was short-lived and on Thursday concerns about slowing global growth and a US-China trade war returned.

While the US Dollar typically benefits from trade war jitters, global growth concerns have been weighing on the US currency lately and making it easier for the Euro to advance. This helped the Euro to push GBP/EUR lower today.

The Euro’s strength was limited by lasting concerns about the Eurozone economic outlook however. The European Central Bank (ECB) said in its latest economic bulletin that it sees global economic slowdown in 2019.

Pound to Euro (GBP/EUR) Exchange Rate Outlook to be Influenced by German Inflation Report

The Euro benefitted from weakness in the US Dollar (USD) on Thursday, but with the Eurozone economic outlook limited and investors still interested in safe haven currencies the Euro’s strength is likely to be short-lived.

This means that in the coming sessions and into the New Year, the Pound to Euro (GBP/EUR) exchange rate is more likely to be driven by Eurozone data instead.

Friday will see the publication of this week’s most influential data publication. Germany’s December Consumer Price Index (CPI) projection will be published in the early afternoon.

If this data comes in higher than expected, it could bolster market speculation that the European Central Bank (ECB) could still hike Eurozone interest rates at some point next year, despite concerns about the Eurozone’s growth outlook.

Weaker Eurozone inflation, on the other hand, could make it easier for the Pound to recover before the end of the week.

UK finance mortgage approvals data due on Friday is unlikely to be particularly influential for the Pound to Euro (GBP/EUR) exchange rate.