Hopes of Brexit Talks Progress Boosts Pound Sterling Euro (GBP/EUR) Exchange Rate
A renewed sense of optimism over the possibility of a UK-EU deal helped the Pound Sterling to Euro (GBP/EUR) exchange rate to rally sharply at the start of the week.
With UK and EU officials preparing to meet for the final round of talks before the October deadline hopes of a potential breakthrough picked up.
While the UK’s controversial internal market bill remains a potential barrier to agreement Pound Sterling (GBP) surged higher on speculation that talks will progress this week.
As long as the two sides appear willing to move forward towards a final deal GBP exchange rates are likely to remain biased to the upside, given their recent bout of weakness.
Even so, any fresh souring in relations between the UK and EU could still easily knock the Pound back as the possibility of a no-deal scenario continues to hang over the economic outlook.
Euro (EUR) Softens in Anticipation of ECB Comments and Negative German Inflation
Support for the Euro (EUR), meanwhile, proved muted ahead of the latest commentary from European Central Bank (ECB) President Christine Lagarde.
Markets are wary of the potential for Lagarde to sound a dovish note in her comments once again, potentially flagging up concerns over the relative strength of the single currency.
Any signal that the ECB continues to monitor EUR exchange rates could weigh on EUR exchange rates, as investors weigh up the possibility of policymaker intervention.
The Euro could experience further weakness on Tuesday as forecasts point towards another disappointing set of German consumer price index data.
If the headline inflation rate falls into negative territory on the year this would give the ECB greater cause for caution, as inflation across the Eurozone continues to trail significantly behind its 2% target.
Unless the consumer price index surprises to the upside the single currency looks set to remain under pressure in the near term.
GBP/EUR Exchange Rate Volatility Forecast on UK Mortgage Approvals Figure
Confidence in the underlying health of the UK economy may take a fresh blow, on the other hand, if August’s mortgage approvals and lending figures fail to show an uptick on the month.
Lower levels of lending activity would point towards another weak month for the UK housing market, adding to the negative economic outlook.
However, if approvals rise on the month as forecast this may encourage the GBP/EUR exchange rate to extend its bullish run further.
As long as confidence within the UK economy shows signs of picking back up in the third quarter this should help to limit fears of another underwhelming gross domestic product performance.
While a significant degree of uncertainty continues to hang over the economy, thanks to both Brexit and the Covid-19 pandemic, any signs of improvement may still give the Pound a solid boost.