The Euro to Pound (EUR/GBP) pairing remains trading in the region of a 17-month low as investors consider the disparity between Bank of England and European Central Bank economic policy.
While the Pound may have faltered slightly after UK growth figures failed to exceed estimates, bets that the Bank of England might be persuaded to increase interest rates sooner than currently forecast continue to support the British asset.
Conversely, the Euro is still struggling against its major rivals as a result of expectations that the ECB will introduce additional stimulus when it meets in June.
This morning the Euro to GBP pairing consolidated declines as German confidence reports revealed a drop in sentiment.
Three measures of German confidence compiled by the IFO showed steeper-than-forecast falls.
The German IFO business climate measure was expected to have edged from 111.2 in April to 110.9 in May, but it actually hit 110.4.
The German IFO current assessment gauge floundered at 114.8, down from 115.3 the previous month and less than the reading of 115.5 anticipated.
Finally, the German IFO expectations index came in at 106.2 instead of the 106.6 projected.
April’s reading was 107.3.
As Germany has been the driving force behind the Eurozone’s return to growth, these results are concerning.
Separate data published this morning confirmed that Germany’s economy expanded by 0.8 per cent in the first three months of the year, but revealed that the growth was almost entirely the result of domestic demand.
In the view of one Cologne-based senior economist; ‘Exports will probably slow but this is not a problem as we have strong domestic demand. The Euro area is dividing again, with strong signals from Germany and Spain, while France and Italy remain causes for concern’.
As investors digested the reports the Euro shed quarter of a cent against the US Dollar and softened against several of its other most-traded currency counterparts.
Further movement in the Euro to Pound pairing may be stilted in the hours ahead.
The Euro looks set to end the week in a softer position against the US Dollar and ‘Aussie’.
It is likely that the Euro’s bearish relationship with the Pound will continue until the ECB gathers in June, but volatility in the EUR/GBP exchange rate could be occasioned next week by German retail sales figures, UK house price/home loans data, German/Eurozone consumer confidence, the German unemployment rate, UK CBI reported sales and the UK GfK consumer confidence survey.
If any of the economic reports for the Eurozone substantially impress, or if data for the UK disappoints, the Euro could claw back some of its recent losses.
Developments in the US and Chinese data will also be of interest.
Euro Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,Pound Sterling,0.8083,
Euro,,US Dollar,1.3620,
Euro,,Canadian Dollar,1.4847,
Euro,,Australian Dollar,1.4750,
Euro,,New Zealand Dollar,1.5935,
US Dollar,,Euro ,0.7343,
Pound Sterling,,Euro,1.2367,
Canadian Dollar,,Euro,0.6735,
Australian Dollar,,Euro,0.6777,
New Zealand Dollar,,Euro,0.6271,
[/table]
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