Eurozone Confidence Slump Shores up Pound Sterling Euro (GBP/EUR) Exchange Rate
The Eurozone Sentix investor confidence index dramatically missed forecasts in June, offering a boost to the Pound Sterling to Euro (GBP/EUR) exchange rate on Tuesday morning.
While markets had anticipated a modest slowdown in the confidence index the plunge from 5.3 to -3.3 weighed heavily on the Euro (EUR), highlighting the negative impact of heightened global trade tensions.
This decline added to anxiety over the outlook of the Eurozone economy, which has already shown signs of losing momentum since the start of the year.
With the US still threatening to impose further tariffs on Chinese imports the risk of a further deterioration in trade conditions remains, exposing the currency union to additional negative pressure.
Unless trade picks up in the near future the potential for a greater Eurozone slowdown could drive the single currency lower across the board.
Steady Unemployment Rate Offers GBP Exchange Rates Support
As the UK unemployment rate held steady at a 44-year low of 3.8% in April this offered the GBP/EUR exchange rate additional encouragement.
With the labour market still showing signs of tightness the mood towards Pound Sterling (GBP) naturally improved, even though the day’s earnings data proved more mixed in nature.
Growth in average weekly earnings stalled from 3.3% to 3.1% in the three months to April, raising fresh concerns over rising UK inflation.
However, as the impact of Monday’s surprisingly weak UK gross domestic product data faded this helped to limit the downside pressure on GBP exchange rates.
The risk of further losses remains, though, as the Conservative leadership contest gets underway in earnest.
As long as markets see high odds of a hard-line Brexiteer becoming prime minister the potential for any further Pound gains is likely to prove limited.
Dovish Draghi Commentary to Weigh on Euro (EUR) Exchange Rates
Comments from European Central Bank (ECB) President Mario Draghi could put further pressure on EUR exchange rates on Wednesday.
If Draghi continues to signal a more dovish outlook on monetary policy the mood towards the single currency is likely to sour.
However, an indication that the ECB will leave interest rates on hold in the months ahead could help to bolster the appeal of the Euro in the near term.
While the central bank is unlikely to return to a hawkish policy bias for the foreseeable future any sense of optimism seen in Draghi’s comments may boost EUR exchange rates.
On the other hand, the GBP/EUR exchange rate could benefit from the release of Spain’s finalised inflation data.
Confirmation that inflationary pressure within the Spanish economy eased in May would put further pressure on ECB policymakers, encouraging a greater shift towards dovishness.