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Pound Sterling to Euro Exchange Rate Fluctuates on Mixed European Central Bank Policy Bets

European Central Bank

Pound to Euro Exchange Rate Attempts to Recover despite Lack of Sterling Support

Since markets opened yesterday, the Pound Sterling to Euro (GBP/EUR) exchange rate has seen broadly mixed movement. Attempts to recover from recent lows have been capped by Brexit jitters, but the Euro (EUR) has been weaker too on European Central Bank (ECB) speculation.

Last week’s GBP/EUR losses were fairly modest, with the pair sliding from 1.1200 to close the week nearer the level of 1.1167.

Investors were hesitant to sell GBP/EUR too much as the pair tested a post-January worst level of 1.1127 before markets closed.

This also helped the Pound (GBP) to rebound from yesterday’s brief lows. GBP/EUR has seen mixed movement so far this week, fluctuating over half a cent.

This morning GBP/EUR trended a little higher than the week’s opening levels, but still below last week’s opening levels.

Pound (GBP) Exchange Rates Struggle to Hold Recovery Attempts amid Persisting Jitters

Not much has changed for the Pound outlook this week, as the outcome of the Conservative Party leadership contest is still weeks away.

Both candidates have been indicating that they would be willing to embrace a no-deal Brexit rather than delay the process again.

The Pound began to recover slightly on Monday afternoon, when the candidates attempted to soothe business nerves by saying they expected a no-deal Brexit was still unlikely, but no-deal Brexit fears only rose again today.

Iain Duncan Smith, Campaign Chairman for contest frontrunner Boris Johnson, indicated that Johnson’s intent was only to open negotiation with the EU if the EU was willing to do a free trade deal.

His comments implied that unless the EU was willing to change the currently negotiated plan, a no-deal Brexit would be a likely outcome.

This, as well as signs that Britain’s housing market is weakening further on Brexit uncertainties, cut the Pound’s recovery attempt short today.

Euro (EUR) Exchange Rates Appeal Mixed amid European Central Bank (ECB) Interest Rate Cut Bets

Investors have been hesitant to keep buying the Euro much higher this week, as the shared currency is already near multi-month highs versus the Pound and other factors weigh on the Euro.

According to futures trading today, markets are now betting around a 50% chance that the European Central Bank (ECB) could cut Eurozone interest rates as soon as this month.

Due to the dovish shift in tone by ECB President Mario Draghi last month, markets are pricing in at least one interest rate cut from the ECB by September.

On top of this, slightly stronger demand for the Euro’s rival the US Dollar (USD) this week has kept additional pressure on the shared currency.

The Euro did find some additional domestic support this morning, after Germany’s May retail sales results came in well above expectations in its year-on-year print.

This helped to cut GBP/EUR’s recovery attempt this morning.

Pound to Euro (GBP/EUR) Exchange Rate Outlook Awaits Eurozone Data

With the Pound’s movement likely to remain subdued due to a lack of major Brexit or political developments expected in the next few weeks, Pound to Euro (GBP/EUR) exchange rate movement is likely to be driven by the Euro.

Euro investors are anxious about the possibility of a European Central Bank (ECB) interest rate cut as soon as this month, but if this week’s upcoming influential Eurozone stats surprise investors it could influence the market’s ECB bets.

Multiple notable Eurozone ecostats are still due for publication this week, including the bloc’s key services and composite PMIs for June from Markit tomorrow, followed by key May retail sales on Thursday.

The services and retail sales could be especially influential for ECB interest rate cut bets, and bets could lighten somewhat if the data impresses.

Wednesday will also see the publication of Britain’s own June services PMI, which is the most notable UK dataset of the week and could cause more solid Pound to Euro (GBP/EUR) exchange rate gains if it comes in above expectations.