Pound to Euro Exchange Rate Struggles to Rebound after Yesterday’s Slump
Since markets opened this week, the Pound Sterling to Euro (GBP/EUR) exchange rate has been plunging. Higher demand for the Euro (EUR) on a strong Eurozone outlook has made it even easier for it to register gains against Sterling (GBP), as UK data hits the Pound.
Last week saw another week of gains for GBP/EUR, as the pair climbed from 1.1100 to the level of 1.1175. This was also just below a three-week-high of 1.1188.
However, the Pound was not able to hold these gains. In fact, since Monday GBP/EUR has been tumbling again, and its losses only worsened yesterday.
Overnight, GBP/EUR touched on a fortnight low of 1.0978. Since then GBP/EUR has rebounded slightly, but still remains below last week’s levels in the region of 1.1022.
Unless tomorrow’s UK data has a notable impact, the Pound to Euro exchange rate outlook could remain pressured.
Pound (GBP) Exchange Rates Find Limited Support in UK Inflation
This morning, Britain’s June inflation rate report was published. The Consumer Price Index (CPI) reading rose to 0.1% month-on-month and 0.6% year-on-year, which were both better than forecast.
However, despite the inflation coming in slightly higher than expected, this was not enough to have a notable impact on the UK or Pound outlooks.
In fact, analysts predict that UK price pressures will remain subdued for quite some time. In comments made today, Bank of England (BoE) policymaker Silvana Tenreyro said that pandemics lead to lower inflation.
She predicted Britain would see a weak v-shaped recovery after Q4 2020.
Her comments on negative interest rates also weighed on the Pound. The BoE has yet to dismiss the possibility of negative rates.
Euro (EUR) Exchange Rates Remain Appealing on Eurozone Outlook
The Euro has been one of the more appealing major currencies in recent months. Markets are optimistic about the Eurozone’s coronavirus pandemic outlook, thanks to data and political hopes.
Eurozone data continues to indicate that the bloc has been fairly resilient amid the pandemic. Investors have also been impressed with how the EU has handled the pandemic overall.
Continued optimism is coming from market expectations that the EU will be able to agree to a Recovery Fund plan as well.
According to Antje Praefcke, FX Analyst at Commerzbank:
‘Whatever it may look like and however it may be judged – the market will be happy one way or the other,
The market is less interested in the details and more in ensuring that the EU is no longer divided but presents a united front,’
Pound to Euro (GBP/EUR) Exchange Rate Outlook Awaits European Central Bank (ECB)
Perhaps the biggest event for the Pound to Euro (GBP/EUR) exchange rate this week will be tomorrow’s European Central Bank (ECB) policy decision.
The ECB is not expected to make any surprise changes to monetary policy in its decision tomorrow. Markets will be closely watching the bank’s tone for shifts in sentiment.
Some analysts say the bank will become gradually more optimistic due to the Eurozone’s more optimistic recovery outlook from the pandemic.
However, any signs that there are disagreements between policymakers could spook markets. This could lead to Euro weakness.
The Pound outlook could be affected tomorrow as well. It depends on the outcome of Britain’s May job market report.
The Bank of England (BoE) is concerned about the health of the job market. If job stats disappoint investors, the Pound to Euro (GBP/EUR) exchange rate will only worsen.
Comments are closed.