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GBP/EUR Exchange Rate Under Pressure as Eurozone Unemployment Falls

Last week’s high: €1.1208

Last week’s low: €1.1128

Unexpected Unemployment Fall Boosts Euro

A surprise improvement in the Eurozone unemployment rate helped to shore up EUR exchange rates last week, even as other economic indicators proved less encouraging in nature.

The mood towards the Euro soured ahead of the weekend, however, thanks to an unexpectedly sharp drop in German factory orders.

As orders slumped 8.6% on the year in May this added to concerns that the Eurozone’s powerhouse economy could fall into recession in the near future.

With the European Central Bank (ECB) looking increasingly likely to cut interest rates in the months ahead the appeal of the single currency naturally diminished.

However, the GBP/EUR exchange rate struggled to capitalise on the relative weakness of the week’s Eurozone data.

As June’s trio of UK PMIs all fell short of forecast this raised the risk of a weaker second quarter gross domestic product.

Worries over the potential for the UK to fall into a state of technical recession ahead of the Brexit deadline weighed down the Pound ahead of the weekend.

Euro Outlook: Weakening Inflation Outlook to Weigh Down EUR Exchange Rates

If June’s finalised German consumer price index confirms that inflationary pressure eased this could leave the Euro on a weaker footing.

As long as inflation across the Eurozone continues to fall short of the ECB’s 2% target EUR exchange rates are likely to remain biased to the downside.

Without evidence that inflationary pressure is picking up the central bank will likely remain on course to ease monetary policy once again.

A continued decline in May’s Eurozone industrial production figures may put additional pressure on the single currency.

Even so, the GBP/EUR exchange rate may struggle to gain any ground this week if the latest UK gross domestic product report disappoints.

Evidence that the UK economy is slowing further would leave the Pound vulnerable to renewed selling pressure.

Key Events

10th July

09:30   UK Gross Domestic Product

09:30   UK Balance of Trade

11th July

07:00   German Consumer Price Index

12th July

10:00   Eurozone Industrial Production

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To keep up to date with the Euro, visit the Euro blog in our Currency News section.

Alastair Archbold
Currency Trader
T: 01442 892 062

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