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Pound Gains Despite Labour Defeat; ECB, Trump, Russian Ties Pressure Euro

June 13, 2019 8:47 am | Modified June 13, 2019 8:47 am
AUD, Brexit, Central Banks, EUR, GBP, USD | BY Charlie Murray

The Pound has begun today trading lower against both the Euro (GBP/EUR) and US Dollar (GBP/USD). The Sterling Dollar exchange rate is trading at levels of 1.2672, while the Pound Euro currency pair resides at around 1.1216.

There may be limited economic data in circulation right now, but the political agenda is ensuring that foreign currency markets remain volatile. From the idea that a new UK Prime Minister could still force through a no-deal Brexit against the will of parliament to Donald Trump threatening to interfere with Russian gas supplies to Europe, uncertainty looks set to remain very much in vogue.

Euro Weakness sees Pound (GBP/EUR) Rise for a Second Day

The British Pound posted a second day of gains over the Euro (GBP/EUR) yesterday, despite yesterday’s defeat in parliament for Labour. The opposition party had tabled a motion that would have stopped the UK leaving the EU without a deal, with the loss here seen as increasing the chances that a compromise will not be found. Despite this narrowing the likely outcomes down to either no-deal or a vote of no-confidence in the government, which could trigger a general election, the Pound managed to rise against the Euro (GBP/EUR). However, it was the dovish rhetoric from the European Central Bank (ECB) at a conference yesterday and talk of sanctions against Russia from the US, rather than any renewed confidence in the British Pound, that appears to have set the pace.

Geopolitical Narrative Helps Lift US Dollar Exchange Rate

US inflation data released yesterday may have been somewhat uninspiring, but concern over the economic outlook elsewhere has been sufficient to leave the Greenback in demand, especially against the Euro (USD/EUR). Adding to the dovish tone from the ECB yesterday were comments from Donald Trump, saying he was considering further sanctions against Russia over the Nord Stream 2 natural gas pipeline. The US President also expressed concern over Germany being increasingly reliant on Russia for energy, something that will become even more marked when the pipeline opens in the coming months. With the US showing little sign of relenting from the approach of flexing its economic muscle to exert influence, the US Dollar has the potential to see further gains, at least in the short-term.

GBP/USD, EUR/USD and GBP/EUR Exchange Rate Movements

The Pound failed to sustain gains yesterday over the US Dollar (GBP/USD), with Brexit concerns and the accompanying political uncertainty both giving little reason for Sterling to find much support. The impact of the better-than-expected employment data from earlier in the week is already fading, and with a quiet day ahead in terms of UK economic data, further gains for the British Pound’s exchange rate could prove difficult to justify.

The Euro slipped against the US Dollar (EUR/USD) off the back of concern that US sanctions against Russia could have a knock-on effect which would impact the currency bloc. Downside was also extended by dovish comments from ECB members suggesting that there’s still more work to be done in a bid to get Eurozone inflation back to its target rate.

The British Pound/Euro exchange rate (GBP/EUR) edged higher yesterday, but this was as a consequence of enthusiasm for the common currency being in short supply. Confidence in the Pound is likely to remain limited so long as the political uncertainty lingers. So while GBP/EUR may have pulled away from the five-month lows seen at the start of the week, any respite could yet prove to be temporary.

Why did it move? – Australian Dollar to US Dollar (AUD/USD)

The latest Australian unemployment data was released overnight, with markets focusing on the fact that the headline rate of those out of work had failed to fall in line with the market expectations. As a result, the pair touched fresh lows for the month overnight, trading down to almost 0.6900, having started the week a full cent higher.

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