5-Day British Pound To Euro Forecast - GBP/EUR.

Exchange Rate Looks Vulnerable To Persistent Brexit Uncertainties

EURO = 0.85500

STG = 1.1250


Brexit-based uncertainty kept the Pound to Euro (GBP/EUR) exchange rate under pressure during much of the week, with markets discouraged by Theresa May’s opposition to remaining in the customs union.

Comments from Irish Prime Minister Leo Varadkar gave investors further cause for worry on Friday as he expressed concerns that the UK could be on course for a ‘no deal’ scenario if progress does not materialise soon.

The prospect of the UK exiting the EU without a withdrawal agreement in place naturally spooked GBP exchange rates, which remained on a downtrend ahead of the weekend.

A sharp widening of the Eurozone trade surplus offered support to the Euro, meanwhile, as the currency union demonstrated fresh signs of economic resilience.

However, as political developments in Italy continued to concern investors the downside pressure on the GBP/EUR exchange rate was somewhat limited.

May’s raft of Eurozone manufacturing and services PMIs could encourage euro exchange rates to strengthen this coming Wednesday.23rd May.

As long as the latest PMIs point towards stronger domestic growth this should help to shore up the Euro, particularly if the German data shows an improvement on the month.

However, any signs of a fresh loss of momentum may weigh heavily on demand for the Euro, giving the GBP/EUR exchange rate room to strengthen.

German and Eurozone consumer confidence indexes could put further pressure on EUR exchange rates if sentiment fails to show an uptick on the month.

Any indication that confidence within the currency union is faltering could give investors incentive to sell out of the single currency.

Weaker data would also encourage the European Central Bank (ECB) to maintain its more dovish outlook on monetary policy.

As analysts at Rabobank noted:

Strengthening UK Inflation Forecast to Boost Pound to Euro Exchange Rate

Confidence in the Pound, meanwhile, could strengthen on the back of April’s UK consumer price index data.

Forecasts point towards a fresh uptick in inflationary pressure, something which could give the Bank of England (BoE) incentive to consider raising interest rates again sooner rather than later.

An increase in price pressures could spur policymakers into hiking rates over the summer, rather than delaying as some investors have feared.

With wage growth having picked up in the first quarter the case for tighter monetary policy looks to have improved, as James Smith, Developed Markets Economist at ING, commented:

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