- Euro Pound Exchange Rate Trends Around 0.8420 – Sterling strengthens on Tuesday
- Brexit Warnings Continue to Hit EU, UK – Eurozone sentiment remains sturdy however
- Pound Recovers From Worst Levels on Friday – Investors readjust Pound value
- Forecast: Theresa May’s first Evening as PM – May could take office on Wednesday night
- Forecast: Bank of England Decision in Focus This Week – Key meeting on Thursday
Euro Extends Losses Vs Pound Ahead of BoE Decision
The Euro Pound exchange rate eased even lower as Tuesday’s European session drew to an end and sentiment for GBP remained upbeat.
An unexpectedly rapid end to the Conservative leadership campaign and hopes Theresa May will be well placed to secure the UK a workable Brexit deal saw Sterling post notable gains across the board.
The EUR/GBP exchange rate is currently trending in the region of 0.8346.
The Eurozone’s industrial production report also disappointed forecasts by printing at -1.2% on the month in May and 0.5% on the year.
Economist Daniel Vernazza said of the result; ‘After a solid increase in the first quarter of 2016, the industrial output is set for a clear slowdown in the second quarter, confirming our view that GDP growth will decelerate in spring after a strong performance’.
(Previously updated 12/07/2016)
Euro Pound Exchange Rate Plummets on Tuesday
The Euro Pound exchange rate continued its Monday downtrend throughout Tuesday as markets continued to react favourably towards the Theresa May’s sudden confirmation for Prime Minister.
Eurozone news has been relatively quiet, leaving the Pound to take point in EUR/GBP movement as has often been the case since the Brexit result.
However, the Euro has also seen mixed movement due to global risk-related cross flows. A drop in appeal for ‘safe-haven’ assets following the Japanese Yen’s plummet this week has dragged the US Dollar down, allowing the Euro to gain against safer currencies but lose value against risk-correlated currencies.
EUR/GBP also has high potential to advance on Thursday after the Bank of England’s (BoE) highly anticipated post-Brexit decision meeting. An interest cut (which is widely expected) would cause a Pound selloff, and allow the Euro to capitalise.
(Previously updated 14:52 BST 12/07/2016)
Euro Pound Exchange Rate Slips Further as May Wins UK Leadership
Despite news that the perceived Italian bank crisis may not have been as big a crisis as some suggested, a bout of Sterling strength pushed the Euro Pound exchange rate down on Monday.
While the currency was initially weak, the sudden drop out of Conservative Leadership runner, Andrea Leadsom, made Home Secretary Theresa May the de-facto winner and soon-to-be Prime Minister.
The leadership contest was previously expected to continue into early September, but outgoing Prime Minister David Cameron stated on Monday afternoon that May would be taking office by Wednesday afternoon.
After two weeks of uncertainty and volatility in UK markets, the knowledge that the next Prime Minister would take office by the end of the week improved Sterling sentiment considerably.
While the Pound was sturdy on Monday and could advance further on Tuesday and Wednesday as May takes office, the Bank of England’s Thursday rating decision could send the Pound plummeting back down.
Given that the central bank is expected to deliver at least a 0.25 basis point rate cut, Pound losses are predicted for Thursday. If the benchmark rate is slashed to 0% the Pound could even fall to new lows against the Euro.
BoE Governor Mark Carney has also intimated that interest rate adjustments aren’t the only stimulus measure being considered at the moment and that the central bank stands ready to take whatever action it deems necessary.
Before Thursday’s rate decision, the EUR/GBP exchange rate could fluctuate in response to the Eurozone’s Industrial Output report for May. The data, which is due to be released on Wednesday, is expected to print at -0/8% on the month and 1.3% on the year.
(Published 11:35 BST 11/07/2016)
The Euro Pound exchange rate was sturdy on Monday’s session after losing some strength last Thursday and Friday. Brexit anxiety continues to weigh on the Pound this week, with the currency softening as markets opened.
EUR/GBP briefly hit its highest levels since August 2013 (0.8610) last Wednesday. While Sterling has since pushed back slightly from those levels, the pair remains around 10 pence stronger than it was before the UK’s EU Referendum. At the time of writing, the EUR/GBP exchange rate trended in the region of 0.8555.
Euro (EUR) Sturdies Despite Mixed News, Exchange Rates Firmed
A slip in demand for risky currencies as well as a well as a lack of appeal for the Pound has led to a relatively sturdy opening for the Euro this week.
Friday’s German trade report was largely disappointing to markets, as it indicated exports had plummeted from April to May. The key German trade surplus also dropped from 25.7b to 21.0b.
Expectations that the European Central Bank (ECB) will soon decide to introduce economic stimulus in order to stave off the potential of Brexit-influenced damage has caused two-year German bond yields to drop, according to Reuters;
‘The five-year, five-year breakeven forward rate, the ECB’s favoured gauge of market inflation expectations, is trading near record lows just under 1.26 percent, down from around 1.40 percent just before Brexit and well below the ECB’s target.
Money markets in the past two weeks have moved to price in a greater chance of a further cut to the ECB’s minus 0.40 percent deposit rate, with a 10 basis point cut priced in by October.
Two-year German bond yields are trading some 30 bps below the ECB’s deposit rate in a another sign that investors are positioning for further monetary easing.’
This has followed Friday’s forecast from the International Monetary Fund (IMF) that the Brexit would harm Eurozone growth. The IMF cut its GDP projections for the Eurozone, contributing to Sterling’s recovery on Friday.
However, despite all the underwhelming news the Euro’s movement was sturdy on Monday on corrective trade. News that JP Morgan still sees the Eurozone as one of the global economy’s brightest spots may also have helped improve Euro sentiment.
Pound (GBP) Slips after Friday Advance, Sterling’s Brexit Downtrend Continues
Sterling drove the Euro back slightly on Friday as investors sought to purchase it from its cheapest levels. However, as the Pound began to fall once more on Monday, it is clear that GBP remains an unappealing currency in the forex market.
While there was little weekend news to undermine Sterling’s appeal, bearish forecasts and news about a post-Brexit Britain have continued to weigh on the Pound’s appeal.
A report from BDO indicated that business uncertainty had affected output and optimism to three year lows, according to the BBC.
‘BDO’s Peter Hemington said uncertainty prompted by Brexit had also disrupted investment in the UK economy.
The report shows business output, which reflects company orders for the next quarter, slipped to 99 last month, compared with 99.7 in May and 100.6 in April.
Meanwhile, business optimism also slid, falling to 98.9 in June from 99.4 in May.’
Hemington went on to argue that businesses need to continue to invest in order to protect the UK’s economy, and not be held back by Brexit jitters.
Euro Pound Exchange Rate Forecast: Markets Anticipate Bank of England (BoE) Meeting
Markets will likely continue to readjust their positions on the Euro and Pound in the coming days in the absence of considerably Brexit-related developments.
Instead, global markets now anticipate that the next big movement will result from Thursday’s highly anticipated Bank of England (BoE) policy decision meeting.
In the UK central bank’s first policy meeting since the historic vote to ‘Leave’ the EU, analysts currently expect there is a 75% chance of an interest rate cut.
Some analysts also suggest that a potential new record low interest rate for Britain would not return to current levels for 5 years or more.
A cut in interest rates would send Sterling plummeting across the board and likely shoot EUR/GBP to its best levels in over three years. On the other hand, Sterling could experience a surge in appeal if the BoE chooses not to cut rates, but this rally may be temporary.
At the time of writing, the Euro Pound exchange rate (EUR/GBP) was trending in the region of 0.8565, while the Pound Euro exchange rate (GBP/EUR) traded at levels near 1.1675.