On Monday, the Euro to Pound exchange rate opened in the region of £0.8839 and closed higher in the region of £0.8870.
This closing improved level was slightly below the day’s best EUR/GBP exchange rate, a high of £0.8892 seen at the height of Pound Sterling weakness.
The sudden shift in EUR/GBP trading was caused by two high-profile resignations in the UK government – Brexit Secretary David Davis and Foreign Secretary Boris Johnson.
Mr Johnson’s departure was the main driver behind Pound Sterling losses in the afternoon, as it was feared that he could mount a bid for the leadership of the Conservative Party.
Yesterday’s Eurozone news proved to be a mixed bag; the base German trade balance for May showed a reduction in the surplus, but the seasonally-adjusted reading revealed a converse expansion.
Sliding German Confidence Levels Cause EUR/GBP Exchange Rate Losses
The Euro (EUR) has struggled today, declining against the Pound (GBP) and most other currency peers because of wary currency traders.
The morning’s ZEW measures of German economic confidence have shown falling sentiment levels during July, while beyond this the single currency has been further devalued by NATO concerns.
In the former case, the latest ZEW German confidence surveys have shown the lowest level of investor confidence since August 2012; ZEW President Achim Wambach identified some of the reasons behind this:
‘The current survey period has been marked by great political uncertainty.
‘In particular, fears over an escalation of the international trade war with the United States have dampened the economic outlook.’
The latter factor pertains to US President Donald Trump’s impending attendance of the NATO summit, which is being held in Brussels.
Mr Trump has historically criticised the multinational security arrangement and could cause further upset in the near-term, which has contributed to lower confidence in the Euro today.
The worry is that Mr Trump will take EU members to task over their budgetary spending on NATO, which he believes is an unfair arrangement as the US pays a sizable amount into the defence budget.
There is little expectation that the US President will try to tear up US membership of NATO, but the potential for a confrontation over spending is still a source of concern for Euro traders.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Rises on Lower Odds of Leadership Challenge
Following on from Monday’s UK political drama, the Pound has since staged a recovery and risen against the Euro today because of the latest developments.
The main factor behind the GBP/EUR exchange rate rise is the assumption that there will not be an immediate challenge to Prime Minister Theresa May’s leadership from Boris Johnson.
Initial fears about an imminent vote-of-no-confidence being levelled against the PM have proven unfounded, with the PM vowing to fight any attempts to unseat her from within her own party.
Additional optimism has come from the conclusion that Mr Johnson is not as viable for the Conservative leadership as he was back in 2016, due to reduced popularity among Tory MPs.
Euro to Pound Sterling Exchange Rate Forecast: Are Greater EUR/GBP Losses ahead on ECB Speeches?
The Euro (EUR) has lost ground to the Pound (GBP) today and unfortunately may be on track for further losses on Wednesday.
The day’s main Eurozone events will be speeches from European Central Bank (ECB) policymakers, coming over the morning and the afternoon.
Among the speakers will be key officials like ECB President Mario Draghi, as well as fellow policymaker Peter Praet.
The main focus for Euro traders will be on whether there is a chance for monetary policy tightening sooner than expected.
Even if someone like Mr Praet backs a more immediate interest rate, however, the Euro to Pound exchange rate could still decline if the more prominent Mr Draghi is cautious in his outlook.
Further ahead, the Euro could recover against the Pound on Thursday if the morning’s industrial production data shows growth as forecast.
This week’s next (and last) significant UK economic data will come on Friday, when Bank of England (BoE) policymaker Jon Cunliffe gives a speech.
Mr Cunliffe may touch on the possibility of an August interest rate hike; if he backs a near-term interest rate increase then the Pound could advance against the Euro late in the week.
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TAGS: Euro Pound Forecasts