The Euro remained on relatively bullish form at the start of the week thanks to a sharp widening of the German trade surplus.
As the surplus widened from 18.1 billion to 22.0 billion in May confidence in the robust health of the Eurozone’s powerhouse economy strengthened.
With exports continuing to outpace imports Germany’s economic outlook appears generally positive, particularly after last week’s strong industrial production figures.
Even so, this positive showing may struggle to support EUR exchange rates in the longer term, as Carsten Brzeski, Chief Economist at ING, noted:
‘Looking ahead, the current upswing of exports should be taken with a pinch of salt. Given the high exchange rate sensitivity of German exports to the US, the latest appreciation of the Euro could leave some marks on the German exports sector in the coming months. Also, the Brexit impact is very unlikely to go away any time soon. These potential downward risks can only be offset by a further strengthening of the Eurozone economy.’
If Wednesday’s Eurozone industrial production data points towards an improvement across the wider currency union, though, the Euro Pound exchange rate could extend its gains further.
Although the chances of the European Central Bank (ECB) pursuing tighter monetary policy in the coming months remain limited the single currency is unlikely to remain particularly biased to the downside.
Pound Volatility Forecast on UK Wage Growth
Investors saw little reason to favour the Pound on Monday, meanwhile, as warnings continued to sound over the likely negative impacts of Brexit.
Markets are now less confident that the Bank of England (BoE) will return to a tightening bias in the near future, removing some of Sterling’s recent support.
Further volatility for the EUR GBP exchange rate is likely in response to the latest commentary from BoE policymakers, even if the chances of an imminent interest rate hike are unlikely to see any material alteration.
Focus will also fall on May’s raft of labour market data, given that the BoE has expressed concern over the sluggish pace of domestic wage growth.
Any uptick in average weekly earnings could offer the Pound a rallying point, however, even if growth remains significantly short of the recent pick-up in inflationary pressure.
Concerns over the increasing squeeze on consumer finances and spending are unlikely to ease significantly, though, as the health of the wider UK economy remains in question.
If the sense of domestic political instability also persists in the coming days Sterling could struggle to gain any renewed traction against its rivals.
Current EUR GBP Interbank Exchange Rates
At the time of writing, the Euro Pound exchange rate was making gains in the region of 0.8858. Meanwhile, the Pound Euro exchange rate was trending lower around 1.1290.