EUR/GBP Drops as Investors Readjust on Sterling Sentiment
- German Data Prints Above Expectations – Consumer confidence and IFO reports up
- Euro Buoyed by Greek Deal Optimism – But investors remain in ‘wait and see’ mode
- UK GDP Prints Largely as Expected – But yearly score slips from 2.1% to 2.0%
- Forecast: Will EUR/GBP Recover Next Week? – GBP trade could be slow before Wednesday
Reflecting the week’s movements as a whole, the Euro to Pound exchange rate slipped lower on Friday afternoon as the week’s trading headed to a close.
While still above the week’s lowest levels, EUR/GBP ended the week very much in Sterling’s favour. Dwindling bets that the UK would ‘Brexit’ from the EU in June saw sentiment towards the Pound soar across the board earlier in the week, with the Pound remaining strong well into Friday afternoon.
However, Pound trade could be slow for much of next week unless ‘Brexit’ debates inspire investors, as Britain’s economic calendar will be quiet until May PMI releases later in the week.
Eurozone data is most definitely in focus next week, as Eurozone labour figures accompany Eurozone CPI next Tuesday. Markets are also sure to anticipate Thursday’s European Central Bank (ECB) June policy decision meeting.
(Previously updated 15:27 27/05/16)
EUR/GBP Trends Steadily After UK Confidence Report
The Euro to Pound exchange rate continued its attempts to recover on Thursday, but slipped a little closer towards the day’s opening levels as Sterling remained sturdy.
However, on Friday GBP clawed back some of its losses as the UK’s GfK Consumer Confidence report improved on forecasts.
The measure of sentiment had been forecast to worsen from -3 to -4 but actually improved to -1.
Joe Staton of GfK commented; ‘Our confidence in economic matters, whether we look back or ahead 12 months, remains way below last year. Is it because the Brexit gremlins are hard at work? Almost certainly yes.’
As the European session progressed EUR/GBP was trending in the region of 0.7615.
Next week’s German inflation figures are likely to be a notable cause of Euro to Pound Sterling exchange rate movement.
The monthly figure is forecast to print at 0.4%, taking the annual measure to 0.0%. Such a result would be Euro-supportive.
Conversely, if German CPI report falls short of forecasts, the Pound approach new highs at the beginning of next week.
Earlier…
(Published 10:48 26.05.2016)
The Euro to Pound Sterling (EUR/GBP) exchange rate attempted to recover after plummeting in the first half of the week due to bets that the UK was unlikely to leave the EU in June. Since then, optimistic Eurozone news has boosted the Euro.
EUR/GBP’s fall began to slow on Wednesday evening after the pairing hit 0.7566, its lowest point since the 1st of February.
By Thursday the Euro had managed to gain on the Pound after the British currency was weakened by below-forecast year-on-year UK GDP data.
The Euro achieved a high of 0.7614 against its UK peer.
Euro (EUR) Strengthens after Greek Debt Relief News
Favour for Euro (EUR) exchange rates increased during Wednesday’s session as investors reacted with optimism towards news of a ‘breakthrough’ deal between the Eurozone and Greece, as reported by the BBC;
‘Greece has agreed a deal to unlock a further 10.3bn euros ($11.5bn; £7.8bn) in loans from its international creditors, after talks in Brussels …
Greece needed this tranche of cash to meet debt repayments due in July.
Now that a deal has been reached, the IMF will consider contributing to the bailout.
The 19 ministers said the deal had been made possible by Greece’s economic reforms and called it a “breakthrough”.
Wednesday’s deal does not reduce the amount Greece will have to repay. Instead, debt relief will be phased in from 2018, after Germany’s general election late next year.’
The deal is being seen by some economists as a compromise, which may have slightly weighed on the Euro’s chances of an immediate recovery. Regardless, the news was generally well-received by markets.
Euro favour was also boosted by Wednesday’s German data releases, all of which exceeded expectations.
GfK’s consumer confidence survey for June improved from 9.7 to 9.8 despite being predicted to hold at 9.7. IFO’s reports all impressed, with business climate improving from 106.6 to 107.7, current assessment rising from 113.2 to 114.2 and expectations jumping from 100.5 to 106.6.
Pound (GBP) Sinks on Mixed Data
After its bullish run earlier in the week, Sterling’s rally may have come to an end as it was hit by a slew of less-than-impressive data on Thursday morning.
While the headline preliminary Gross Domestic Product (GDP) scored the expected 0.4% quarter-on-quarter, it unexpectedly slowed from 2.1% to 2.0% year-on-year. While British growth has struggled due to ‘Brexit’ concerns, this lower figure indicated that Q2’s score could be worse than feared.
The BBA’s loans for house purchase report also disappointed by dropping from 43,854 to 40,104, despite being expected to improve to 44,700.
The Q1 preliminary business investment report also scored worse-than-expected. The quarterly print was expected to escape contraction of -2.0% to score 0.1%, but instead scored -0.5%. The yearly score, on the other hand, worsened from 3.0% to -0.4%.
As a result of the mixed data, the Pound began to slip on Thursday, but will it sustain the majority of its gains?
Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast: UK Consumer Confidence Ahead
The EUR/GBP exchange rate could see a recovery from its three-month-low if investors continue to be optimistic towards the Eurozone, or if they indulge in a bout of profit-taking following the UK’s mixed growth news.
However, with EUR/GBP still over -120 pips down from the week’s opening levels, it’s likely that most of Sterling’s bullishness this week will be sustained.
Investors still expect GfK’s UK consumer confidence report before the end of the week, which is predicted to worsen from -3 to -4 in May but could easily bolster the Pound if it prints above expectations.
Developments in Greek debt deal could see the Euro bolstered further, or weakened if it faces considerable criticism.
On the other hand, the Pound could weaken further if the ‘Leave’ campaign ramps up its arguments or offers an influential post-‘Brexit’ forecast. Sterling could also solidify even more gains on news that would serve to strengthen the ‘Remain’ campaign.
The Euro to Pound Sterling (EUR/GBP) exchange rate trends in the region of 0.7605, while the Pound Sterling to Euro (GBP/EUR) exchange rate trades around 1.3145.