- Pound Euro Exchange Rate Attempts Recovery– GBP/EUR hovers around 1.21
- Sterling (GBP) Bought on Lows, Government Attempts to Calm Markets– While MEPs speak in Brussels
- Forecast: Will Britain Incite Article 50 Soon?– Estimates range from days to years
- Forecast: Euro (EUR) Weighed on by ECB Anxieties– When will the ECB President Discuss Brexit?
Pound Euro Exchange Rate Improves on Calmer Market
The Pound Euro exchange rate attempted a more solid recovery on Wednesday after mixed movement throughout Tuesday’s session, as UK-EU negotiations remained slow and markets took the opportunity to buy Sterling from its low prices.
Favour towards the Euro was mixed, but it could recover in the coming days due to speculation that the European Central Bank (ECB) would not introduce new easing measures as previously feared.
This is because the economic effects of a Brexit announcement have thus far not been as bad as some analysts had feared.
Despite this, Sterling still has a considerable amount of pressure on it going forward due to leadership uncertainty from both major UK political parties, as well as the difficulty of any EU negotiations before Article 50 is formally activated.
(Previously update 10:29 29/06/2016)
The Pound Euro exchange rate slightly recovered from its lowest levels on Tuesday as investors indulged in Sterling’s cheap levels and bought back into the currency. In the immediate aftermath of the world learning that the UK had voted to leave the European Union the GBP/EUR exchange rate dropped from 1.31 to 1.20, and while the Pound’s downward spiral appears to have eased, that doesn’t mean there aren’t further losses ahead.
The Pound remains highly pressured, with Britain’s future looking uncertain.
Many analysts see the Pound’s slight recovery as a temporary phenomenon and still envisage the British asset sliding in the weeks and months ahead as Brexit negotiations get formally underway.
GBP/EUR also benefited slightly from a weaker Euro. The pair fluctuated between gains of 0.1% and 0.8% throughout Tuesday, and at the time of writing was trending widely in the region of 1.2090. The Pound Euro exchange rate remains well below the week’s opening levels of 1.2300.
Pound (GBP) Movement Continues to Lead Market Shock
Since last Friday, the Pound has been at the centre of most major currency market shifts around the world. This has not just been limited to Sterling’s plummet after the Brexit result was announced last week. The UK news has also limited demand for the Euro (EUR) due to fears of contagion.
After another session of considerable losses on Monday, Sterling looked to recover across the board on Tuesday as investors bought the currency from its lows.
The trend began during the Asian trade session, continuing into the European and American sessions. This is likely due to many aspects of Britain’s economic and political landscapes being in limbo on Tuesday.
Britain’s future looked as uncertain as ever, with the Labour party undergoing a crisis of change under Leader Jeremy Corbyn and the Conservative party set to begin the process for picking its new Prime Minister.
Despite this, the lack of real economic news or change throughout the day meant markets had been allowed to calm. The BBC reported;
‘Pressure has eased on UK financial markets after two days of turmoil in the wake of the Brexit vote, with the FTSE 100 share index opening higher.
In afternoon trading, the index was up 2.8% at 6,151.56, while the FTSE 250 had gained 3.3%.
The FTSE 100 lost 5.6% in the previous two trading sessions, while the more UK-focused FTSE 250 had slumped 13.7%.’
Euro (EUR) Sentiment Remains Mixed
Tuesday’s session also served as a reminder that the Euro was almost as much a victim of Brexit as the Pound was, as the Euro dropped against some majors while recovering against others.
Similarly to the Pound, the Euro was boosted by profit-taking after being dragged down as a result of Sterling association since Friday. GBP/EUR remained well below last week’s levels regardless, with the Euro having sustained considerable gains.
Fears on the European Union’s (and the Eurozone’s) future have been a large part of Brexit-related Euro pressure, with many nationalist parties across the bloc hoping for their own EU Referendums.
Markets have also been closely eyeing the European Central Bank (ECB) and its President, Mario Draghi, for any hints towards what measures may be taken in the near future to limit the economic damage of a Brexit. According to The Wall Street Journal;
‘Investors are increasingly concerned that the central bank is running out of tools to support the eurozone economy and drive up inflation.
“I think the ECB does not have a lot of ammunition left, at least a lot that would really make a difference,” said Martin Lueck, chief German investment strategist at BlackRock, Inc., which manages assets worth $4.7 trillion.
Those concerns have been aggravated by the fresh economic headwinds emanating from across the English Channel, after Britons voted last week to leave the EU. European banks have come under renewed pressure in the wake of that vote, a worry for the ECB because banks help transmit the central bank’s policies to consumers and businesses.’
While Draghi has yet to make an extended statement on the Brexit result, he expressed sadness about the result on Tuesday, alongside pleas for European banks and other central banks to coordinate policies to tackle low inflation.
Pound Euro Exchange Rate Forecast: GBP/EUR Recovery Unlikely to Continue
Unless European Central Bank (ECB) President Mario Draghi reveals the central bank’s upcoming easing and stimulus plans, or offers an extended speech on what a Brexit could mean for the European Union, the Euro is unlikely to lose much ground against the Pound in the coming week.
While the Euro remains weak itself, the pressure and uncertainty around Sterling and the British economy could lead to quick losses, with investors hovering their fingers above the volatile Pound.
In particular, news about when Article 50 (the formal process of leaving the EU) will be activated is likely to be the source of considerable speculation and debate within markets over the coming days and weeks.
MEPs throughout the EU believe that the UK should incite Article 50 as soon as possible, but British MPs have a consensus that the process shouldn’t be rushed.
UK Prime Minister David Cameron believes the process should be set in motion by his successor, who is not expected in office until September or October. Front runners for the position include Boris Johnson and Theresa May.
At the time of writing, the Pound Euro Exchange Rate (GBP/EUR) was trending in the region of 1.2090, while the Euro Pound Exchange Rate (EUR/GBP) traded at around 0.8270.
