The Pound came under fresh selling pressure at the start of the week, with investors shaken by news that the Conservatives’ lead over Labour has narrowed to just nine points.
This shook the market assumption that Theresa May will coast to a significantly increased majority in June, undermining some of the recent confidence of Sterling.
With a major Conservative majority less than assured the prospect of a more tumultuous Brexit process remains, weighing heavily on the outlook of the UK economy.
Although the Rightmove house price index for May bettered expectations this was not enough to shore up the Pound Euro exchange rate.
Confidence in the resilience of the domestic economy remains limited at this juncture, with April’s public sector net borrowing figure unlikely to offer a rallying point to Sterling.
Forecasts point towards an uptick of 8 billion in new government debt on the month, indicating the UK’s continued reliance on foreign lending.
As the uncertain shape of Brexit and the post-referendum weakness of the Pound are likely to put increasing pressure on the country’s finances a widening of the deficit could discourage investors further.
Volatility could also be in store for the GBP EUR exchange rate with the release of the updated first quarter UK gross domestic product report.
While no particular revisions are anticipated in the second estimate any further details pointing towards a slowing in economic growth could dent the appeal of the Pound.
Following the Greek parliament’s approval of the latest raft of creditor-mandated tax reforms and pension cuts the mood towards the Euro picked up.
Markets are optimistic that this should pave the way towards the disbursement of the next tranche of bailout funds, in good time for the 7 billion Euros of debt repayments due in July.
Even so, today’s Eurogroup meeting is not likely to be an entirely smooth affair, with the issue of debt relief likely to cause some disagreement amongst finance ministers.
If the meeting does not yield any particular developments in terms of debt relief then the appeal of the Euro could fade, signalling that the Greek crisis still has some distance left to run.
Comments from European Central Bank (ECB) policymakers are unlikely to offer the single currency any particular support in the coming week, with talk set to remain generally dovish in tone.
However, if there are signs of an increasing split in opinion on the ECB executive board this could put some downside pressure on the GBP EUR exchange rate.
While the tapering of the quantitative easing program remains a distant prospect any shift towards hawkishness could boost the Euro across the board.
Comments are closed.