Pound to Euro Muted as Middle East Risks Weigh on Sentiment

– Written by


Frank Davies

STORY LINK Pound to Euro Muted as Middle East Risks Weigh on Sentiment

The Pound Euro (GBP/EUR) exchange rate traded in a narrow range on Tuesday as a sparse data calendar left both currencies without a clear catalyst.

At the time of writing, GBP/EUR was trading at €1.1580, down roughly 0.15% on the day.

The Pound (GBP) traded in a narrow range on Tuesday, as a risk-off market mood limited demand for the increasingly risk-sensitive UK currency.

However, Sterling was able to hold its ground following the Confederation of British Industry’s (CBI) latest distributive trades survey.

The CBI retail sales balance improved more sharply than expected in May, climbing from -68 to -46 and beating forecasts of -60.

While the stronger-than-forecast reading helped cushion GBP, it was not enough to drive a clear rally, as the figure remained firmly in negative territory.

Meanwhile, the Euro (EUR) held its ground against the Pound as a deterioration in risk appetite lent the safer single currency some support.

The market mood soured after the US launched fresh strikes on Iran, casting doubt over the fragile ceasefire.

The move surprised investors, with recent signals from Washington having suggested that a US-Iran peace deal was close.

However, the Euro’s gains were capped by a lack of notable Eurozone economic data, leaving EUR without a strong domestic catalyst.

Near-Term GBP/EUR Forecast: Middle East Tensions to Drive Movement?

Looking ahead, a lack of notable UK data on Wednesday could leave the Pound without a clear domestic driver.

As a result, Sterling may take its cues from wider market dynamics, including gilt yield movement and UK political developments.

If concerns over the Middle East conflict push UK borrowing costs higher again, the Pound could come under pressure as investors grow wary of the UK’s fiscal outlook.

The Euro, meanwhile, may also struggle for direction amid another thin Eurozone data calendar.

With few domestic releases to guide movement, the common currency could be influenced by its negative correlation with the US Dollar (USD).

Should Middle East tensions deepen and lift demand for the safe-haven ‘Greenback’, the Euro may face headwinds.

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TAGS: Pound Euro Forecasts