Pound Weakens Against Euro as Eurozone Results Better than Expected

Alan Penny

13 June 2019

3 min read

UK Pound trading

Thursday morning saw the British pound weaken against the euro as the industrial production figures from the Eurozone were better than expected, with the EUR/GBP trading at 0.88936.

The published figures showed that while industrial output still declined, it was to a lower degree than expected. Investors are hoping that the fall could ease up even further in the near future.

Euro Could Still Suffer

The EUR/GBP rate could still come under pressure, though, if Italy’s economic data doesn’t improve.

Analysts expect a decline of -4.1% in industrial orders, which would indicate a slowdown in growth. If the figures are on par with forecasts, market sentiment related to Italy’s economic health could take a nosedive.

As tensions continue over the EU’s budget regulations, any poor economic data could lead to another round of disagreements between EU and Italian officials. There are major differences of opinion in terms of how growth should be stimulated.

On the other hand, if Italy’s industrial sector posts somewhat positive results, this could lead to the euro gaining some ground.

Furthermore, if wholesale prices in Germany rise, market sentiment towards the euro would likely improve, providing the currency with more support to the upside.

It also seems the European Central Bank will likely stick to their dovish outlook over the following months, which means that any increase in pressure on prices could provide the market with an ever more optimistic outlook on the euro.

British Pound Could See Increase in Demand

Mark Carney, the Governor of the Bank of England, could help increase demand for the pound. If he indicates that the BoE will maintain its cautiously positive outlook regarding the U.K. economy, it could be just the encouragement investors require to invest in the pound before the weekend.

The pound would receive further support in the near future if the BoE indicates that an interest rate increase is still possible in 2019.

However, any potential gains will be limited by worries over continued Brexit tensions.

Pound Gains Limited Due to Continued Brexit Worries

The uncertain political landscape along with continuing Brexit unpleasantness forced the pound down to very weak levels this week. This situation has also limited any gains the currency might make in the near future.

Yesterday, the pound experienced a little recovery on the back of news that the Labour Party was making a new attempt to stop a no-deal Brexit from going through.

The market reacted with some optimism as this would mean Prime Minister Theresa May’s successor could not go through with a no-deal Brexit.

Unfortunately, Parliament voted against the prevention of a no-deal Brexit, with the Conservative Party leading the charge because it was brought to the table by Jeremy Corbyn, the Labour Party Leader, instead of someone from the back bench.

Pound Gains Against the Australian Dollar

The Australian dollar was one of the few currencies to weaken against the pound today. The rising GBP/AUD rate was owed to continued indications of a weak Australian economy along with an increase in bets that the Reserve Bank of Australia will cut interest rates.

The GBP/AUD opened at 1.8200 and grew steadily so that now it is trading at 1.8363.

Even the worries over a no-deal Brexit didn’t seem to be able to affect the weakening of the Australian dollar. However, the pound’s gains did slow down a little.

The main driver of negative market sentiment towards the AUD was the latest data from Australia’s job market.

The report showed that participation increased to 66% and the employment change number was 42.3k, which was better than expected. However, unemployment remained at 5.2%, missing the forecasts of 5.1%, which resulted in a weaker AUD.

Written By
Alan Penny

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