The GBP/EUR exchange rate trended lower this week as lingering Brexit uncertainty appeared to overshadow a slew of upbeat UK economic data published this week.
Upbeat Data Fails to Inspire the Pound
The Pound struggled this week, trending lower against the Euro in spite the session being chock full of positive high-profile UK data.
These included the UK’s latest inflation, retail sales and PMI figures, all of which printed above expectations and bolstered hopes that the UK economic will have returned to growth at the start of this year, after stagnating at the end of 2019.
This downturn in Sterling sentiment was mostly fueled by lingering Brexit uncertainty, with GBP investors growing increasingly wary about the possibility of a no-deal at the end of 2020.
This appeared to be spurred by comments from the EU’s chief negotiator Michel Barnier, who warned that while the EU seeks an ‘ambitious partnership’ with the UK, its proximity rules out a Canada-style free trade deal.
Meanwhile, the Euro faced some headwinds at the start of the week as the latest ZEW surveys reported a sharp drop in German economic sentiment this month on fears the coronavirus will be particularly damaging to Germany’s export driven economy.
The single currency was able to recoup some of these losses in the latter half of the week however, with EUR investors welcoming a surprising robust set of Eurozone PMI figures.
Brexit Jitters to Continue to Drag on Sterling?
Looking ahead to next week’s session, the Pound is likely to become increasingly sensitive to Brexit development as markets brace for the start of trade negotiations between the UK and EU next month.
This may limit any upside in Sterling if the news flow remains largely negative, stoking fears that the two sides will clash over the terms of their post-Brexit trade relationship.
For EUR investors the focus next week will be on the Eurozone’s consumer price index (CPI), with an expected slide in inflation likely to dent the Euro.
Also set to influence the single currency will be the Eurozone’s latest business confidence figures, where coronavirus fears are likely to prompt another deterioration in sentiment.