- Preliminary Eurozone PMI Below Expectations – German PMI positive, however
- ECB Concerns Begin to Calm – Policymaker Coeure claims ECB has no plans for more easing
- EU Referendum a Month Away – Britain still seen unlikely to ‘Brexit’
- Forecast: Eurozone Consumer Confidence Ahead – Followed by German GDP on Tuesday
The Euro to Pound Sterling (EUR/GBP) exchange rate recovered slightly on Friday after investors indulged in profit-taking following the Pound’s three-month-highs. However, on Monday the pair began to slip again on mixed Eurozone news.
At the time of writing, the initially flat EUR/GBP rate was fluctuating on the week’s opening levels of 0.7736. The pair briefly hit a low of 0.7707 after Eurozone data disappointed but quickly recovered ground. Given that the Eurozone’s economic calendar is notably fuller than the UK’s this week, news from the currency bloc is likely to have a more significant impact on EUR/GBP trading than UK data. That being said, any EU Referendum related comments are liable to trigger movement.
Eurozone Data Continues to Disappoint Investors
The Euro slipped against many majors on Monday morning after the week kicked off with the Eurozone’s preliminary May PMI reports. While Germany’s results surpassed expectations, the general Eurozone’s scores disappointed and dragged the shared currency down.
Manufacturing was predicted to improve from 51.7 to 51.9, but it instead dropped to 51.5. Services was expected to gain slightly to 53.2, but instead remained at 53.1. Lastly, the Composite score let down chances of a boost to 53.2 by dropping from 53.0 to 52.9.
The aforementioned German scores likely muted the Euro’s drop. Manufacturing beat out expectations of 52 by rising from 51.8 to 52.4. Services, expected to remain steady at 54.5, instead improved to 55.2. The Composite score impressed by making a healthy gain from 53.6 to 54.7, well above the expected 53.9.
Other Eurozone economic news may have held back the Euro as European Central Bank (ECB) policymakers recently began to adopt mixed tones.
Following statements from policymaker Benoit Coeure last week that the ECB was not considering additional easing at this time, ECB Chief Economist Peter Praet reiterated the ECB’s stance that the bank had many tools and would continue to do what was needed to avoid deflation, according to the Financial Times.
Pound (GBP) Remains Sturdy Despite Friday Profit-Taking
The Pound enjoyed a bullish session last week as bets that the UK was unlikely to ‘Brexit’ from the EU in June continued to increase.
A new poll from Ipsos MORI released last Wednesday indicated an 18-point lead for the ‘Remain’ campaign of 55% to 37% for ‘Leave’. This rally was briefly extended on Thursday by largely positive retail sales data before Sterling weakened from three-month-highs on investor profit-taking.
The Pound slightly regained its footing during Monday’s session despite light data as investors continued to lower their ‘Brexit’ bets.
According to The Guardian, Chancellor George Osborne stated over the weekend that the UK could face a ‘DIY recession’ that could last as long as a year if it votes to leave the European Union.
‘The chancellor and David Cameron will present a Treasury analysis into the short-term economic impact of Brexit, which claims GDP will be 3.6% lower after two years than it would be if Britain votes to remain.
It also warns of a sharp rise in inflation, with house price growth hit by 10%, as it compares the expected uncertainty to that experienced in the early 1990s recession.’
With the EU Referendum now exactly a month away – on the 23rd of June – the current confidence in the Pound could easily be undermined if strong arguments are presented by the ‘Leave’ campaign.
Euro to Pound Sterling (EUR/GBP) Exchange Rate: Busy Week for Eurozone Data Ahead
The Euro could be set to drive EUR/GBP movement a lot more this week with a bustling economic calendar ahead for the Eurozone. May’s Eurozone consumer confidence report is due for release on Monday afternoon and is predicted to narrow its contraction from -9.3 to -9.
This will be followed on Tuesday by a slew of data including Final German Gross Domestic Product (GDP) scores for Q1 – which are predicted to hold at their preliminary figures.
Eurozone and German ZEW economic sentiment surveys will be released later on Tuesday, alongside ZEW’s current situation report for Germany. As for British data, PSNCR is set to release its public finances report for April on Tuesday morning.
While UK data is comparatively quiet, ‘Brexit’ debates are certain to heat up in the coming week with less than a month to go until the historic EU referendum vote.
The ‘Leave’ campaign has an opportunity to turn the tides if it presents a strong argument, which could see Sterling plummet. However, the Pound could remain sturdy if ‘Brexit’ bets continue to fall.
The Euro to Pound Sterling (EUR/GBP) exchange rate trends in the region of 0.7736, while the Pound Sterling to Euro (GBP/EUR) exchange rate trades at around 1.2925.
