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Rebound in UK Activity Boosts Pound Sterling to Euro Exchange Rate Outlook

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Pound to Euro Exchange Rate Outlook Strengthens but Limited by Brexit Uncertainty

Earlier in the week, the Pound Sterling to Euro (GBP/EUR) exchange rate was throttled by fresh hard Brexit fears. However, Sterling (GBP) remains volatile and has recovered a chunk of those losses against the Euro (EUR), thanks to stronger UK data boosting the domestic outlook.

Following last week’s climb from 1.1856 to 1.1902, GBP/EUR plummeted when markets opened on Monday. GBP/EUR quickly shed around two cents and touched on a new fortnight low of 1.1713 yesterday.

Since then though, GBP/EUR has seen a rebound thanks to solid British ecostats. GBP/EUR continues to climb on today’s data and at the time of writing is trending close to the level of 1.1831.

Despite the latest Eurozone data beating forecasts as well, demand for the Euro (EUR) is limited. Euro investors continue to await more key Eurozone data due later in the week.

Pound (GBP) Exchange Rate Rebound Extends on Forecast-Beating UK Services Stats

Investors bought the Pound back from its worst levels in weeks yesterday. The Pound rebounded from lows as the shock of fresh hard Brexit fears softened, and the latest UK data beat forecasts.

Yesterday’s sessions saw the publication of Britain’s latest construction PMI data, which contracted much less than expected at 48.4. This softened Bank of England (BoE) interest rate cut speculation.

Britain’s economic outlook was further bolstered today, as the nation’s final January service PMI rounded out the set of PMI by also beating forecasts.

Services were expected to climb from a stagnant 50.0 to 52.9, but instead rebounded to an even better 53.9. It was the strongest reading for Britain’s key services PMI in 16 months and boosted hopes of a UK economic rebound.

Analysts predict that domestic relief around the clear UK Election results and the narrowing of Brexit options helped activity to recover.

Euro (EUR) Exchange Rates Struggle despite Stronger Eurozone PMIs

Unlike the Pound, the Euro has failed to capitalise on recently strong Eurozone data.

There are various reasons for this, primarily the strength of the Euro’s rival the US Dollar (USD). The US Dollar has seen strong demand this week as markets buy it back from its falls against the safe haven Japanese Yen (JPY).

With market coronavirus concerns calming but still notable, the US Dollar (USD) is benefitting from market safe haven demand, as well as strong US data. With the US Dollar strong, the Euro has been weaker due to the negative correlation the currencies share.

As a result of this, the Euro has been unable to benefit from today’s stronger than expected Eurozone services PMI data. Eurozone services and composite PMIs came in stronger than projected, even though French PMIs missed the mark.

Demand for the Euro was weighed slightly by this morning’s Eurozone retail sales results, which printed a deeper than expected monthly contraction of -1.6% in December.

Pound to Euro (GBP/EUR) Exchange Rate Outlook Focuses on Brexit and Eurozone Data

This week’s UK data has bolstered market hopes that Britain’s economy is seeing a 2020 rebound. This is likely to keep supporting the Pound and prevent it from falling too far in the coming sessions.

Amid a lack of notable domestic ecostats due until next week though, the Pound will be driven by Brexit speculation and developments in the coming sessions.

As a result, if there are no Brexit developments the Pound to Euro exchange rate will be driven more by Euro strength.

Key Eurozone data due in the coming days could influence the Euro if it surprises. German factory orders are due tomorrow, with German trade and production stats on Friday.

They could give investors a better idea of how the Eurozone economy is performing. This would influence the Euro outlook.

As well as Eurozone data, Pound to Euro (GBP/EUR) exchange rate movement could be influenced by strength in Euro rivals like the US Dollar (USD).