The GBP/EUR exchange rate found itself striking a fresh five-month low this week as continued Brexit uncertainty dragged on Sterling sentiment.
Pound Sinks on No-Deal Brexit Fears
The Pound to Euro exchange rate came close to stumbling below the €1.10 barrier this week, as fears of a no-deal Brexit weighed heavily on Sterling through the first half of the session.
With Boris Johnson almost certain to become the UK’s next PM, GBP investors have been growing increasingly worried by his recent remarks as he re-affirmed his commitment to leaving the EU in October, stoking fears of a no-deal Brexit.
However the Pound was able to recoup some of its losses in the second half of the week as GBP investors welcomed the Bank of England’s (BoE) financial stability report.
While the bank warned that the risks of a no-deal Brexit have risen, Sterling sentiment rose as the bank suggested the UK economy is better prepared for a no-deal Brexit.
Meanwhile, the Euro stumbled in the second half of the week, following the publication of the minutes from the European Central Bank’s (ECB) June policy meeting as they confirmed the bank’s easing bias, signalling to EUR investors that we are likely to see some form of stimulus from the ECB this year.
Will Slowing Wage Growth Dent Sterling?
Looking ahead to next week, it’s likely we will see the pound remain on the defensive through the start of the session following the publication of the UK’s latest employment figures.
While the unemployment rate is widely expected to have held steady in May, the accompanying earnings figures could dampen Sterling sentiment should wage growth have continued to slow.
This will be followed on Wednesday by what is expected to be some robust UK inflation figures.
However, given the BoE increasingly dovish outlook it’s unlikely the release will stoke any expectations of a rate hike from the bank this year, limiting any upside in the Pound in the mid-week.
Meanwhile, the focus for EUR investors is likely to be on the Eurozone’s latest economic sentiment index, where another gloomy reading is expected to weigh on the Euro.
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