What Factors will Strengthen Euro Exchange Rates this Week?

EUR to GBP Faces a Pivotal Week with Inflation and ECB

It could well prove to be an interesting second half to the week for euro exchange rates with a string of data potentially helping the single currency break out of the stagnating ranges against the pound and the US dollar. This week’s timid inflation reading for the Eurozone had halted the euro’s progress with cheaper energy costs stalling the bloc’s progression back up towards the EU’s target level.

Remaining on the topic of energy, a recent report from Reuters showed the over exposure and reliance from leading European banks to gradually redundant fossil fuel sectors, a growing concern for the European Central Bank. Furthermore, trade data out for Italy which might act as a precursor to Friday’s current account figures for the bloc with question marks around international trade rising to the surface.

GBP EUR: Why is the Pound Starting to Strengthen?

Today’s string of releases from the Bank of England remain the likely drivers for GBP EUR exchange rates throughout the second half of this week. Although Friday’s retail sales figures due from the Office for National Statistics could also prove to be a market mover. The Bank of England (BoE) will be wary of mounting pressures as the markets continue to speculate on the severity of the next interest rate drop in order to protect lending conditions and prop up the economy through the summer and beyond. The fact that today the BoE is due to put forward an added £100bn bond buying scheme could draw further attention, making this morning’s releases all the more weighted. GBP EUR has continued to trend in and around the 1.11 mark for a while now having barely shifted by my than 1.1% in over a month. It could be argued that the lack of movement reflects the cautiousness across European markets with multiple question marks still hanging over both sides of the channel. Will Brexit talks accelerate in order to meet the end of year deadline? How long can the European Central Bank continue to support the Bloc’s recovery and we will see the balanced and transparent distribution of monetary stimulus that the ECB have so openly promised?

Macron’s trip to the UK this weekend may well spark some added headlines to the Brexit saga, with the French President always keen to defend EU interests when given the opportunity. Furthermore, we have already seen signs of increased divides being driven between European members as they each have taken their turn to stake their claim for added support. If the euro is going to make another sustainable drive against the pound and maybe push sterling back below the 1.10 mark, clear signs of unity may be needed on this front to convince the markets to support the single currency moving forward. The economic bulletin from the European Central Bank is due this morning and could shed further light on this matter ahead of tomorrow’s keenly anticipated European council meeting.

EUR USD Forecast: More Volatility Ahead?

The shifts in political stability state side has provided plenty of opportunities for euro holders looking to buy dollars this week. The 13 point gap dividing Biden and Trump could indeed continue to be a trend setter for the pairing. We have seen a degree of market volatility around the dollar as the US president’s popularity rating has started to slip. However after a brief spell back in the 1.13s the dollar seems to have capitalised on the hesitance around the euro and forced the EUR USD pairing back down to the low 1.12s.

Interestingly, the reversal occurred around the same time US and Chinese diplomats met for the first time since last year in a bid to rebuild bridges. The meeting in Hawaii was described as “constructive” by Beijing, although US representatives did highlight their frustration in not receiving full transparency over the country’s handling of the virus to help the planet recover from COVID-19. Clearly, throughout 2019, the deteriorating relationship between the world’s 2 largest economies continually brought volatility to USD exchange rates and perhaps the rekindling of connections here has helped set the dollar on a new trend.

Looking at USD EUR levels, today’s key job market figures from the US might shift the pair out of current ranges given the ongoing concerns from the Federal Reserve. The jump to over 20m in jobless claims last month rocked investor appetite making this afternoon’s release all the more watched. According to FX Street the markets are expecting a slight slow down in initial jobless claims however with many workers returning back to their posts.

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