Widening Eurozone Trade Surplus Weighs Down Pound Sterling Euro (GBP/EUR) Exchange Rate
As the Eurozone trade surplus widened further in March this left the Pound Sterling to Euro (GBP/EUR) exchange rate on the back foot.
Investors were encouraged by this latest sign of resilience within the Eurozone economy as the surplus swelled from 19.1 billion to 22.5 billion on the month.
This stronger showing suggests that the currency union had largely shrugged off the impact of global trade tensions at the end of the first quarter, improving confidence in the economic outlook.
However, while the improvement helped to shore up the Euro (EUR) this morning this positive impact could prove short-lived.
With trade tensions between the US and China continuing to worsen, given the blacklisting of Chinese telecoms giant Huawei, the global growth outlook remains muted.
Although the Trump administration has stepped back from threats to impose fresh tariffs on European automobile exports this may not be enough to shield EUR exchange rates from worries over global trade.
Political Anxiety Keeps GBP/EUR Exchange Rate Under Pressure
Increasing political pressure on Prime Minister Theresa May also weighed on Pound Sterling (GBP), meanwhile.
With Conservative MPs pushing for May to set a departure date GBP exchange rates struggled to find support, dragged down by domestic anxiety.
A continued lack of progress towards a Brexit compromise between May and the Labour leadership equally limited the appeal of the Pound.
As the government appears no closer to a breakthrough on the issue, given disagreements over the prospect of a second public vote, the GBP/EUR exchange rate looks biased to the downside.
Without evidence of progress towards a resolution of Brexit uncertainty the Pound is likely to remain under pressure for the foreseeable future.
Signs of Stronger Eurozone Inflation to Boost Euro (EUR) Demand
The mood towards the Euro could improve further, on the other hand, if April’s finalised Eurozone consumer price index data confirms a solid uptick in inflationary pressure.
Although an annual inflation rate of 1.7% may not be enough to encourage the European Central Bank (ECB) to raise interest rates in the months ahead this could still boost the single currency.
As long as policymakers see less incentive to maintain a dovish policy bias EUR exchange rates are likely to find fresh support.
However, any downward revision to the inflation data could prompt the Euro to trend sharply lower ahead of the weekend.
Focus will also fall on March’s Eurozone construction output data, with forecasts pointing towards the sector losing momentum on the year.
If growth eases significantly from the strong reading seen in February this would expose EUR exchange rates to a fresh bout of selling pressure.
Another solid month of output growth, though, could see the GBP/EUR exchange rate extending its downtrend further.
