- Pound Euro Exchange Rate Near 1.13 –Drops on Tuesday’s BoE comments
- Brexit Negotiations Formally Begin – Despite uncertainty about UK government
- Pound Quiet on Queen’s Speech – BoE’s Haldane boosts Sterling demand
- EUR Forecast: Eurozone PMIs on Friday – Euro trade could be quiet until then
Pound Euro Sees Slight Wednesday Recovery
Towards the end of Wednesday’s European session, the Pound Euro exchange rate had slipped back from the day’s best levels and ultimately was unable to break past the key level of 1.14.
While investors were excited by BoE chief economist Andy Haldane’s hawkish remarks, traders doubted that this hawkishness would last.
Some analysts believe Haldane’s tone could shift if UK data worsens in the coming months.
As well as that, even if Haldane begun to vote for interest rate hikes in the coming months, that would still only leave three policymakers voting for a rate hike – as hawk Kristin Forbes is being succeeded by the comparatively more dovish Silvana Tenreyro art the end of June.
[Previously updated 12:54 BST 21/06/2017]
A mere day after Bank of England (BoE) Governor Mark Carney asserted that Britain was not ready for an interest rate hike, the Pound bounced back up as BoE policymaker Andy Haldane surprisingly turned hawkish.
Typically seen as one of the bank’s more dovish policymakers, Haldane stated on Wednesday that the BoE may have to wind back some of its loosest monetary policies due to rising inflation and hike rates towards the end of 2017.
Sterling surged following his comments, but as Haldane and Carney appeared to offer contrasting tones just a day apart its gains were limited.
[Previously updated 16:48 BST 20/06/2017]
Pound Euro Drops as BoE Governor Renews Dovish Tone
Despite Brexit negotiations finally beginning this week, the biggest news for Pound traders so far has been a speech from Bank of England (BoE) Governor Mark Carney.
Distancing himself from the BoE’s three hawkish policymakers who voted to hike rates last week, Carney stated that Britain was not ready for higher interest rates.
He argued that with so many uncertainties about Brexit and the outlook for the country’s job market, looser monetary policy was likely to be necessary for an extended period.
As analysts and investors now bet the BoE won’t hike rates until 2019, the Pound Euro exchange rate tumbled closer to its 2017 lows and trended in the region of 1.13.
[Previously updated 12:53 BST 20/06/2017]
The first day of Brexit negotiations has come and gone and it appears it will be some time before markets have a better idea of any potential post-Brexit trade deal.
UK Brexit secretary David Davis appeared to concede with the EU’s negotiation priorities. Citizen rights, a ‘divorce bill’ and talks about Northern Ireland’s border will be completed before trade talks can begin in full.
This means there is unsurprisingly a long period of uncertainty ahead for Pound traders.
The Pound Euro exchange rate dropped down to the level of 1.13 on Tuesday, as Bank of England (BoE) Governor Mark Carney took a dovish stance in a speech at Mansion House.
Carney argued that Britain was not ready for higher interest rates, disappointing investors following last week’s surprising BoE vote split.
[Published 06:00 BST 20/06/2017]
The Pound Euro exchange rate saw mixed movement on Monday as the first day of formal Brexit negotiations between Britain and the EU finally began. Uncertainty about Britain’s government and the Brexit negotiation outlook remains high.
GBP EUR advanced last week due to the latest Bank of England (BoE) policy decision, rising from the level of 1.1382 to around 1.1420. However, the pair remains less than two cents above last week’s 2017 low of 1.1282.
Pound (GBP) Jittery as Political Uncertainty Persists
Amid a lack of optimistic ecostats in recent weeks, the Pound has seen mixed movement due to ongoing political uncertainties.
Monday saw formal Brexit negotiations finally begin after months of anticipation, but as the focus was on forming a timetable its impact on the Pound was limited.
UK Brexit secretary David Davis indicated that UK-EU discussions would begin with ‘positive and constructive’ mindsets. EU negotiators have indicated that they wish for the status of expats, as well as the UK-EU ‘divorce bill’, to be among the first priorities in talks.
Uncertainty about Britain’s government has also weighed on Pound demand this week. This and Brexit uncertainties could keep the Pound from advancing too far even on impressive data.
According to Kit Juckes from Societe Generale;
‘The UK position is as clear as mud’ beyond growing signs that the UK wants free trade without being part of the customs union or conceding grounds on border controls.
Sterling’s probably range-bound. Any rally triggered by ‘soft Brexit’ hopes is probably temporary.’
On top of political jitters, last week’s ecostats have also had a negative impact on the Pound outlook. Last week’s data indicated that Britain’s economy could slow down as slowing wage growth has a negative effect on retail activity.
Euro (EUR) Fails to Capitalise Despite Macron Success
Despite the Pound’s volatility on Monday, the Euro was unable to capitalise and push GBP EUR down towards its 2017 lows.
Monday’s only Eurozone data worthy of note was April construction output, which dropped from 3.8% to 3.2% year-on-year.
Euro traders were more focused on the weekend’s French legislative elections, which saw French President Emmanuel Macron’s fledgling party winning a clean majority in France’s national assembly.
Together with its ally party, MoDem, Macron’s centrist La République en Marche (LREM) party won 350 seats despite only being around 15 months old.
Macron’s big win indicated that he would more easily be able to push through his planned economic reforms. However, some of his plans, particularly his labour proposals, have proven unpopular.
With a record-low voting turnout for the second round of the legislative elections, markets remain concerned that Macron will face obstacles going forward. Marc Ostwald, from ADM Investor Services, stated;
‘The focus will be on how French President Macron turns words into action after securing a solid parliamentary majority, though not as large as opinion polls had suggested, and with a very poor 43.5% turnout underlining a great deal of scepticism among the general public as a whole.’
Last week’s Eurozone economic data was unable to offer the shared currency any fresh support either. As the Euro has recently hit multi-month-highs against other major currencies, it faces resistance and investors have been selling it from its highs in profit-taking.
Pound Euro Forecast: Uncertainty Likely to Persist
The Pound Euro exchange rate is unlikely to see any big moves on Tuesday unless political developments shock investors, as the day’s economic calendar will be quiet.
Tuesday will see the publication of Spain’s April trade balance report and Germany’s May PPI results, but these are unlikely to cause any notable Euro movement.
Instead, traders are more likely to continue digesting Monday’s Brexit news and anticipate Wednesday’s economic data and political events.
The biggest focus on Wednesday will be the Queen’s speech, as the new parliament will formally begin.
Investors remain concerned about the dwindling popularity of UK Prime Minister Theresa May and the Conservative party’s plan to cooperate with Northern Ireland’s Democratic Unionist Party (DUP).
Many have criticised the potential partnership between the Conservatives and DUP, or have argued it would be difficult to sustain long-term. Others have called for May to resign as Prime Minister following her poor election campaign.
Wednesday will see the publication of this week’s most influential UK data, May’s public sector net borrowing results. Pound Euro exchange rate investors are more likely to focus on political developments however.
