Stronger UK House Price Growth Shores up Pound Euro (GBP/EUR) Exchange Rate
A better-than-expected uptick in the Nationwide housing price index helped to keep the Pound Sterling to Euro (GBP/EUR) exchange rate on a positive footing on Thursday morning.
While price growth remained below the historical average investors still took encouragement from the data, with prices strengthening 0.8% on the year.
As the monthly index clocked in at 0.5% in November this represented the strongest month of growth since July 2018, suggesting that the market is shrugging off ongoing political jitters.
There remains a risk of the housing market slowing in the wake of the December general election, however, if the results deliver another hung parliament.
Even so, markets still see limited cause for confidence in the underlying health of the UK economy, thanks to the weaker nature of November’s UK PMIs and other recent data releases, limiting the upside potential of Pound Sterling (GBP).
Euro (EUR) Appeal Forecast to Improve as German Inflation Ticks Higher
Demand for the Euro (EUR) could pick up in the wake of November’s German consumer price index report, however.
Forecasts point towards a modest uptick from 1.1% to 1.2% in the headline inflation rate, suggesting that inflationary pressure within the Eurozone’s powerhouse economy is picking up.
While this would not bring inflation in line with the European Central Bank’s (ECB) 2% target EUR exchange rates could still see a sharp improvement on the back of the data.
However, as the monthly consumer price index looks set to deliver a less positive reading the single currency may struggle to recover its lost ground.
If monthly inflation contracts -0.6% as markets anticipate this would cast fresh doubt over the outlook of the German economy, leaving the Euro vulnerable to renewed selling pressure.
As long as investors see a risk of the ECB maintaining its dovish policy bias for the foreseeable future EUR exchange rates are likely to remain on a generally weaker footing.
Negative UK Consumer Confidence Set to Weigh on GBP Exchange Rates
The GBP/EUR exchange rate may also shed some of its ground if Friday’s UK GfK consumer confidence index remains steady at -14.
As long as consumer sentiment lingers in negative territory without signs of improvement the mood towards the Pound is likely to sour.
With weaker levels of consumer confidence likely to put a dampener on household spending another negative month for the index may increase the risk of a softer fourth quarter growth rate.
Further evidence of slowing UK economic activity may encourage investors to sell out of the Pound ahead of the weekend, bracing against the odds of a disappointing gross domestic product.
Additional volatility could be in store for the GBP/EUR exchange rate as markets continue to weigh up the likely outcome of the general election.
If the polls show fresh signs of narrowing this could leave the Pound exposed to a bout of sharp losses.