Brexit Worries Keep Pound Sterling Euro (GBP/EUR) Exchange Rate on Weaker Footing
Anxiety over the prospect of a potential no-deal Brexit kept the Pound Sterling to Euro (GBP/EUR) exchange rate under pressure on Thursday morning.
With the odds still favouring Boris Johnson as the more likely candidate to succeed Theresa May investors remain wary of the potential for the UK to leave the EU without a deal in October.
As Johnson has expressed a willingness to bypass Parliament in order to push through his vision of Brexit the appeal of Pound Sterling (GBP) has naturally diminished.
Bill Diviney, senior economist at ABN AMRO, commented:
‘Although MPs have shown through a number of votes that they do not support a no-deal Brexit, the legal mechanisms to prevent a Prime Minister intent on pursuing such a course are limited if a deal is not even brought to parliament. As a result, we last month raised the probability we assign to a no-deal Brexit to 25% from 15% previously.’
Given the weakness of recent UK data there was little room for GBP exchange rate support at this stage.
Slide in Eurozone Confidence Weighs Down Euro (EUR) Exchange Rates
Even so, the Euro (EUR) struggled to capitalise on its rival’s weakness thanks to an underwhelming set of Eurozone confidence surveys.
Markets were disappointed as the headline economic confidence index fell short of forecast, slumping from 105.1 to 103.3 in June.
This suggests that the second quarter Eurozone gross domestic product data is likely to show lacklustre growth momentum, further limiting the appeal of the single currency.
With the European Central Bank (ECB) already biased towards dovishness this latest sign of weakness weighed EUR exchange rates down.
Further Euro softness could be in store on the back of June’s German consumer price index reading.
Forecasts point towards inflation easing from 0.2% to 0.1% on the month, reaffirming the lack of sustained price pressure within the Eurozone’s powerhouse economy.
Pound Sterling (GBP) Losses Forecast as UK Consumer Confidence Weakens Further
Friday’s GfK consumer confidence index may put additional pressure on GBP exchange rates, meanwhile, as investors anticipate a modest decline on the month.
Fresh evidence of weakening consumer sentiment would leave the Pound vulnerable to renewed selling pressure ahead of the weekend.
With political uncertainty and worries over Brexit looking unlikely to ease in the near future the chances of any particular recovery in confidence appear slim.
As higher levels of consumer spending have previously helped to shore up the gross domestic product a greater degree of caution could weigh on economic growth.
While no change is expected from the finalised first quarter GDP reading any negative signals could see the GBP/EUR exchange rate slump once again.
As long as the threat of a no-deal Brexit continues to hang over the economic outlook this may keep Pound Sterling on the back foot.