Rise in German Unemployment Limits Pound Sterling Euro (GBP/EUR) Exchange Rate Losses
An unexpected uptick in the German unemployment rate helped to limit the downside pressure on the Pound Sterling to Euro (GBP/EUR) exchange rate.
As unemployment change saw a stark increase of 60,000 on the month confidence in the underlying strength of the Eurozone’s powerhouse economy naturally faltered, leaving the Euro (EUR) on a weaker footing.
This increase in unemployment suggests that the German economy is struggling to shake off the impact of deteriorating global trade, raising the risk of a further slowdown in domestic growth.
As long as signs continue to point towards Germany losing fresh growth momentum in the second quarter the strength of the single currency looks set to diminish.
Even so, thanks to the ongoing jitters over the Conservative leadership election the GBP/EUR exchange rate struggled to capitalise on the underwhelming German data.
Euro (EUR) Demand Falters After ECB Financial Stability Review Caution
However, EUR exchange rates may struggle to avoid losing ground in the days ahead as markets continue to process the European Central Bank’s (ECB) Financial Stability Review.
As the central bank warned that the Eurozone’s financial stability faces risk from a global slowdown policymakers look set to maintain a cautious outlook for the foreseeable future.
Political divisions within the EU could also put downward pressure on the Euro in the near future, given increasing disquiet from Italy over budget restrictions.
Another political clash between the Italian government and the European Commission could pave the way for fresh EUR exchange rate losses.
Investors are likely to keep a close eye on discussions over ECB President Mario Draghi’s successor, meanwhile, as leaders remain divided over their preferred candidates.
Unless a more hawkish-leaning candidate gains support the mood towards the single currency could deteriorate further.
Anxiety Over Potential No-Deal Brexit to Keep Pound Sterling (GBP) on Back Foot
Rising odds of a no-deal Brexit could keep Pound Sterling (GBP) under pressure in the weeks to come as the political fallout of Theresa May’s resignation continues.
With a hard-line Brexiteer already considered the frontrunner in the race to succeed May the GBP/EUR exchange rate looks vulnerable to a prolonged period of market jitters.
Unless support swings towards a more moderate candidate the upside potential of the Pound could prove limited.
Friday’s GfK consumer confidence index may encourage GBP exchange rates to recover some ground, however.
Forecasts point towards the index showing a slight uptick on the month, suggesting that domestic sentiment saw a modest improvement in May.
Evidence of greater confidence among consumers, even if the index remains in negative territory, could see the Pound trending higher ahead of the weekend.
On the other hand, another decline in sentiment would offer investors fresh incentive to sell out of Pound Sterling, exposing the GBP/EUR exchange rate to further weakness.