Pound to Euro Exchange Rate Falling Lower as Brexit Fears Dominate
Despite a lack of notable developments in UK news this week so far, fresh jitters about the future of British politics weighed heavily on Sterling (GBP) since yesterday and the Pound Sterling to Euro (GBP/EUR) exchange rate has been tumbling lower as a result.
After spending most of last week lower, GBP/EUR ultimately recovered most of its losses and closed the week near the level of 1.1158. This put it just barely below the previous week’s opening level of 1.1160.
Since markets opened yesterday though, GBP/EUR has slumped again. Investors are becoming more and more anxious about the possibility of Britain’s next Prime Minister leading the nation towards a no-deal Brexit outcome.
At the time of writing on Tuesday morning, GBP/EUR trended closely to a low of 1.1093. This was a new worst level for the pair since January.
Though GBP/EUR trends near its worst levels in months, the pair could be in for even further losses as well depending on upcoming major data.
Pound (GBP) Exchange Rates Tumble amid Brexit Panic and Weaker UK Data
Last week’s late-week recovery in the Pound may have been more due to investors buying the British currency back from its cheapest levels in profit taking than any particular fresh support for the British currency.
As a result, the Pound tumbled again yesterday. A lack of support meant that rising Brexit fears continued to drag heavily on Sterling exchange rates.
The biggest concern for investors is the rising perceived chance that Britain’s next Prime Minister will lead the nation to a no-deal Brexit outcome in October.
Frontrunner to be next PM, Boris Johnson, could win be Prime Minister by the end of the month. He continues to harden his stances on Brexit, giving Pound investors very little to be bullish about.
On top of this, both Johnson and his contest opponent Jeremy Hunt said the contentious Irish backstop part of the EU’s deal was ‘dead’.
As the EU has indicated it will not do a deal without some kind of backstop, this has made investors even more anxious that Britain is headed for a worst-case scenario no-deal outcome.
Sterling also failed to find much fresh support in today’s UK job market report. While wages climbed at a faster pace than analysts expected, less new jobs were made than expected as well.
Euro (EUR) Exchange Rates Subdued despite Weakness in Rivals
Demand for the Euro (EUR) has been weak overall this week, despite its gains versus an even weaker Pound.
Investors have been hesitant to buy the shared currency much, due to a lack of particularly promising Eurozone data.
Most recent Eurozone data has been fairly mixed, pointing towards continued weakness in the Eurozone economy, with only a few signs of recovery.
Due to concerns of prolonged weakness in the Eurozone economy, bets of European Central Bank (ECB) monetary policy easing have been rising as well.
These factors have prevented the Euro from capitalising on factors that typically make it more appealing, such as weakness in the Pound and its biggest rival, the US Dollar (USD).
Still, as Federal Reserve interest rate cut bets continued to weigh on the US Dollar and Sterling was weighed by Brexit fears, the Euro was still able to advance against the Pound.
Pound to Euro (GBP/EUR) Exchange Rate Outlook to be driven by Ecostats and Brexit Developments
GBP/EUR has already seen fairly significant movement this week, as Sterling reacts to fresh Brexit fears, but upcoming UK and Eurozone data could cause even further movement in the pair.
Tomorrow will see the publication of some of this week’s most influential data, with UK and Eurozone Consumer Price Index (CPI) inflation rate stats from June being published.
If UK inflation is weaker than expected, it could further flare speculation that the Bank of England (BoE) could cut interest rates instead of hiking them.
Similarly, the Euro would weaken if Eurozone inflation disappoints and leads to higher European Central Bank (ECB) interest rate cut bets.
UK retail sales and German PPI data due later in the week may also be influential.
However, as the week draws on Pound to Euro (GBP/EUR) exchange rate investors are likely to become more focused on Brexit and UK politics as Britain’s leadership contest will likely reach its conclusion next week.