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Pound to Euro Exchange Rate Rebounds but Brexit Uncertainties Dominate Outlook

Pound to Euro Exchange Rate Gains Limited amid Fears No-Deal Brexit is Harder to Avoid

The Pound’s (GBP) trend of falling almost every week on the latest no-deal Brexit fears showed no signs of stopping last week, and the Pound Sterling to Euro (GBP/EUR) exchange rate saw yet another session of major losses.

After opening last week at the level of 1.0946, GBP/EUR immediately started to tumble. In reaction to poor UK growth data the pair fell even lower on Friday and closed the week nearer the level of 1.0737.

At the time of writing this morning, GBP/EUR was trending a little higher near the level of 1.0801.

GBP/EUR has been climbing since hitting last Friday’s low of 1.0643, which was the new worst post-referendum level for the pair. It was the worst level for GBP/EUR since the financial crash a decade ago.

Pound (GBP) Exchange Rates Struggle to Rebound as Brexit Fears Dominate Outlook

Investors are buying the Pound back from its cheapest levels in profit-taking today, but as has been a common trend in recent weeks these gains may not last.

Rather than finding any notable support in UK data or political news, Sterling’s gains seem to be entirely due to a rebound from last week’s latest selloff.

Sterling continues to be pressured heavily by fears that Britain is headed towards a no-deal Brexit, and those fears have shown no signs of letting up.

The Institute for Government (IFG) think-tank has warned that UK MPs have limited chances to prevent the Boris Johnson government from pushing through a worst-case no-deal Brexit in October.

Brexit fears continue to limit the Pound’s potential for recovery. It follows last Friday’s news that Britain’s economy had surprisingly contracted in Q2 2019.

Euro (EUR) Exchange Rates Unappealing as Italian Political Jitters Worsen

Italy’s ruling populist coalition government has been falling apart, and fears are rising that the nation could be headed towards being run by a more far-right group which may even threaten to take Italy out of the Eurozone.

Matteo Salvini, Chief of Italy’s far-right League Party, filed a no-confidence motion in the coalition government at the end of last week.

He aims to call a snap election, and recent polls suggest his League Party has enough support to form a government with a far-right coalition instead of its current coalition with the cross-wing populist 5-Star Movement.

While Salvini has indicated he does not plan to take Italy out of the Eurozone, and his plan has hit obstacles amid signs that opposition parties could unite against him, the uncertainty is weighing on the Euro (EUR).

The Euro also remains weighed by concerns about the Eurozone’s economic outlook. Germany’s manufacturing sector has been seeing a deepening crisis which is negatively impacting Eurozone growth overall.

Pound to Euro (GBP/EUR) Exchange Rate Outlook Could Improve on German Data

While Italian political jitters are weighing on the Euro, concerns about the health of Germany’s economy continue to play a major part of the current Eurozone outlook as well.

As a result, investors are highly anticipating more key German data due for publication over the coming days.

Tuesday will see the publication of Germany’s final July inflation rate report, as well as some economic sentiment data from ZEW. Wednesday will follow with Germany’s Q2 growth rate projections.

Germany’s Q2 growth projections on Wednesday could be among this week’s most notable ecostats, as the data will give investors a better idea of how high the likelihood of a German recession may be.

If German data disappoints investors in the coming days, it is likely to weigh on the Eurozone’s overall growth data as well. This would cause European Central Bank (ECB) easing speculation to rise and the Euro to weaken.

A much weaker Euro would be one of the best chances the Pound to Euro (GBP/EUR) exchange rate has of continuing its recovery this week, as the Pound itself is unlikely to find much support without optimistic Brexit developments.