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Could Strong German Data Push Euro to Pound Sterling Exchange Rate to New 2019 Best?

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03 Aug 2019

Euro to Pound Exchange Rate Sustains Gains on Eurozone Data and Brexit Fears

Demand for the Euro (EUR) has been limited over the past week, but despite that the Euro to Pound Sterling (EUR/GBP) exchange rate has seen significant gains due to no-deal Brexit fears causing a Sterling (GBP) plummet.

After opening last week at the level of 0.8992, EUR/GBP surged as investors sold the Pound en masse. EUR/GBP touched on a high of 0.9183 after its rally, which was the best level for the pair since September 2017.

While EUR/GBP was unable to climb higher or hold these best levels, the pair’s recoil was limited as well due to broad Pound weakness. On Friday, EUR/GBP was trending near the level of 0.9142 – less than half a pence below the week’s best levels.

The Euro’s strength was weighed by European Central Bank (ECB) speculation but benefitted from weakness in rivals like the Pound and US Dollar (USD). Euro demand could rise if next week’s Eurozone data impresses investors.


Euro (EUR) Exchange Rates Benefit from Rival Weakness and Some Solid Eurozone Stats

Despite continued speculation that the European Central Bank (ECB) could take a more dovish stance on Eurozone monetary policy going forward, the Euro ended up seeing fairly strong performance last week, helping it to secure big gains against the weak Pound.

Of course, most of last week’s EUR/GBP gains were driven by the Pound’s significant selloff, but towards the end the Euro did find some support from other places.

For example, weakness in the Euro’s rival, the US Dollar (USD). The two currencies have a negative correlation, and while the US Dollar did rise slightly on the latest Federal Reserve news, it weakened on Friday due to fresh US-China trade tensions.

This left the Euro more resilient at the end of the week, and the shared currency also benefitted from some stronger than expected Eurozone retail sales results.

Eurozone retail sales unexpectedly jumped to 1.1% month-on-month and 2.6% year-on-year in June, well above forecasts.



Pound (GBP) Exchange Rates Pressured by Political Jitters

No-deal Brexit fears were the big story driving the Pound’s movement throughout last week. They caused the Pound to plummet when markets opened on Monday, and worsened economic and political concerns enough to keep Sterling weak.

Investors sold the Pound in reaction to rising expectations that Britain’s new Boris Johnson government would aim for a no-deal Brexit if the EU did not agree to reopen negotiations.

Johnson has said he will not accept a UK-EU withdrawal deal that includes the controversial Irish backstop plan. Rising no-deal Brexit fears led to significant Pound losses.

Throughout the week, the Pound was kept under pressure as the Bank of England (BoE) cut its UK growth forecasts amid Brexit uncertainty, and as fears of a general election rose.

A by-election saw Britain’s Liberal Democrats Party win a seat from the Conservative Party, reducing the government’s allied majority to just one seat. It was perceived as worsening the chances of a general election.


Euro to Pound (EUR/GBP) Exchange Rate Investors Await News on German Economy

As the Euro to Pound (EUR/GBP) exchange rate continues to trend relatively closely to its best levels since 2017, investors may be hesitant to buy the Euro much higher without reason.

However, as no-deal Brexit fears continue to dominate the Pound outlook, investors may not have much reason to buy the Pound either.

While UK services data due on Monday and growth data due Friday would be typically influential, they may not change the Pound outlook much unless they notably surprise investors.

As a result, Euro to Pound exchange rate movement is most likely to be driven by Eurozone data that could drive Euro gains or losses over the coming week.

Eurozone services and composite PMI data from July could influence the Eurozone outlook on Monday, but the most notable data of the week will be German factory and trade stats due Tuesday through Friday.

German factory orders from June and July construction PMI data will come in on Tuesday, followed by June industrial production on Wednesday, and Germany’s June trade balance report on Friday.

As slowdown in Germany’s factory and trade is one of the major concerns clouding over the Eurozone economy and the European Central Bank (ECB) outlook, these stats could cause notable Euro to Pound (EUR/GBP) exchange rate movement over the coming week.

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