Lack of Improvement in German Consumer Confidence Drags on Euro Pound (EUR/GBP) Exchange Rate
As the latest German GfK consumer confidence index reading failed to pick up on the month as anticipated the Euro to Pound Sterling (EUR/GBP) exchange rate struggled to hold onto its uptrend.
While forecasts had pointed towards a moderate improvement from -1.7 to -1 the index instead clocked in at -1.6, highlighting the persistent gloom hanging over the Eurozone’s powerhouse economy.
With confidence looking set to remain under pressure for the foreseeable future, given the rising number of Covid-19 infections and fresh social restrictions, demand for the Euro (EUR) weakened.
Investors were further discouraged by the nature of September’s raft of Eurozone manufacturing and services PMIs, which offered further evidence of weakness within the currency union.
A surprise fall into contraction territory for the Eurozone services PMI caught markets off guard, pushing the EUR/GBP exchange rate onto the back foot.
This growing evidence that the summer rebound in activity has already started to fade, casting greater doubt over the economic outlook, weighed heavily on the single currency.
Underwhelming UK PMIs Limit Potential for Pound Sterling Gains
Even so, Pound Sterling (GBP) struggled to capitalise on the vulnerability of its rival on Wednesday as worries over the UK economy lingered.
As both the UK manufacturing and services PMIs showed a slowdown on the month this gave markets fresh evidence of the challenges facing the economy.
While the service sector remained in a state of positive growth the prospect of a further loss of momentum in the coming months limited the bullish impact of the PMI.
The risk of the UK seeing further social restrictions imposed if the Covid-19 infection rate fails to improve in the coming weeks also put a dampener on the Pound.
With September’s CBI distributive trades index looking set to weaken, dipping from -6 to -10, support for the Pound may prove limited in the near future.
Fresh signs of weakness within the retail sector would add fuel to existing bets on the prospect of the economy slowing further in the second half of the year.
Evidence of ECB Dovishness May Weigh on EUR/GBP Exchange Rate
The EUR/GBP exchange rate could come under fresh pressure, meanwhile, on the back of the European Central Bank’s (ECB) latest economic bulletin.
If the bulletin offers fresh suggestion that the central bank could intervene to curb the Euro’s relative strength this may dent EUR exchange rates.
As long as the ECB appears on course to maintain its dovish outlook for some months to come the potential for further single currency gains seems limited.
However, an uptick in the German IFO business climate index could offer the EUR/GBP exchange rate a boost.
Signs of stronger business confidence, in spite of global Covid-19 anxiety, may give the Euro another leg up.
