Modest UK House Price Improvement Limits Pound Sterling Euro (GBP/EUR) Exchange Rate Gains
As the latest Rightmove house price index highlighted the continued weakness of the UK housing market this left the Pound Sterling to Euro (GBP/EUR) exchange rate on a weaker footing.
Although house prices showed modest growth of 0.2% on the year this was not enough to give Pound Sterling (GBP) a boost against its rivals.
With UK households inclined towards a greater sense of caution ahead of the March Brexit deadline the housing market does not look likely to pick up in the near future.
Reports of a potential breakaway by a handful of Labour MPs also limited the appeal of the Pound at the start of the week, fuelling the sense of political uncertainty that continues to hang over the domestic outlook.
Pound Sterling (GBP) Gains Forecast on Solid UK Wage Growth
The GBP/EUR exchange rate could find encouragement on the back of Tuesday’s UK labour market data, however.
While forecasts point towards no change in the headline unemployment rate the latest average weekly earnings data may give the Pound a boost.
Signs that wage growth picked up further in the three months to December could foster a greater sense of confidence in the economic outlook.
Even though wages remain a long way from their pre-financial crisis levels any fresh improvement should support GBP exchange rates.
With inflation looking set to remain muted in the months ahead wages are likely to extend their recovery further.
Any evidence of a slowing labour market, however, may drag on the GBP/EUR exchange rate.
Dovish ECB Outlook Weighs on Euro (EUR) Exchange Rates
In the wake of recent dovish commentary from European Central Bank (ECB) policymakers the mood towards the Euro (EUR) has soured, meanwhile.
EUR exchange rates could face further losses with the release of February’s German ZEW economic sentiment survey.
Another negative reading from the sentiment index would weigh heavily on the appeal of the single currency, with confidence in the outlook of the Eurozone’s powerhouse economy already dented.
Any weakness in the corresponding Eurozone sentiment index could put additional pressure on the Euro, fuelling concerns that growth will ease further in the coming months.
If Eurozone data continues to paint an underwhelming picture this could encourage bets that the ECB will maintain a dovish policy outlook in 2019.
As analysts at Rabobank noted:
‘Even though we hold some hopes of a moderate (domestic) growth pickup in the Eurozone from Q2 onwards, we believe the ECB has already missed its ‘window’ to hike rates “through the summer” (even under a flexible interpretation of that guidance).’
Any additional dovish comments from ECB policymakers may also shore up the GBP/EUR exchange rate in the days ahead.