- GBP EUR Exchange Rate Forecast to Fluctuate – Implied market volatility predicted to reach record-highs
- Euro (EUR) Exchange Rates May Struggle – Concerns regarding ECB policy outlook may weigh on demand
- EU Referendum to Dominate Trader Focus – Brexit vote likely to cause massive Sterling losses
- Euro Also Forecast to Decline on Brexit Vote – Risk of contagion to spook investors.
GBP EUR Exchange Rate Forecast to Achieve 1.36 on Remain Victory
The GBP EUR exchange rate remained trading in the region of 1.30 on Tuesday as support for the ‘Remain’ campaign remained sturdy and economists bet that Britons will vote to remain in the EU on June 23rd.
Some analysts are forecasting a Pound Euro rate of 1.36 in the event of victory for the Remain side, but given how much GBP has already recovered, the pairing could climb even higher.
Conversely, if the UK opts to leave the Union the Pound could fall by 10% against the majority of its currency peers.
(Previously updated 19/06/2016)
Growing ‘Remain’ Support Improves GBP EUR Exchange Rate Forecast
While the GBP EUR exchange rate forecast has been mixed in recent weeks, the Pound was able to surge by over 1.5% as the European session got underway on Monday, with the British currency achieving a high of 1.2994 – within touching distance of the 1.30 level.
The Pound’s boost was largely due to support for the ‘Remain’ camp increasing following several days of suspended campaigning.
As well as romping higher against the Euro, the Pound posted a gain of almost 2% against the US Dollar and was over 1% higher against the Australian, New Zealand and Canadian Dollars.
The Pound achieved an impressive high of 1.4673 against the US Dollar and struck a two-week high against the Australian Dollar. A GBP gain of over 2% was also recorded against the Franc.
Tomorrow’s UK public borrowing data is unlikely to have much of an impact on currency-market movement with investors so focused on the upcoming referendum vote.
That being said, investors with an interest in the GBP EUR exchange rate are still likely to view the latest ZEW economic sentiment surveys for Germany and the Eurozone with interest.
The current situation survey for Germany is believed to have edged ever so slightly lower, but a more dramatic drop from 6.4 to 4.8 has been forecast for the German Economic Sentiment measure.
(Previously updated 08:00 20/06/2016)
Towards the close of the week the GBP EUR exchange rate was trading narrowly as volatility cooled ahead of the last weekend before the EU referendum vote.
Such is the expected impact of the vote, no matter what the result, that domestic data is likely to have a comparatively muted effect on the Pound.
As the European session opened on Monday, the Pound was firmer against both the Euro and US Dollar as demand for the British currency increased amid rising support for the ‘Remain’ campaign.
The Pound held and extended gains as trading progressed.
(Previously updated 08:00 20/06/2016)
GBP EUR Exchange Rate Forecast: EU Referendum to Dominate Trader Focus
Towards the close of last week Sterling volatility cooled after reaching record-levels with traders becoming increasingly reactionary to EU referendum developments.
This was mostly due to a suspension of EU referendum campaigning following the shocking and tragic murder of British Lawmaker Jo Cox.
‘The halt in campaigning may just take Brexit off the headlines momentarily, and that may have given an opportunity just to see a little bit of a retracement in a comparatively quieter environment,’ said Orlando Green, a rates strategist at Credit Agricole.
However, Sterling volatility in response to EU referendum uncertainty is likely to surge in the coming days with the June 23rd vote drawing ever closer. Many suspect that implied GBP volatility will reach fresh record-highs.
CMC Markets stated; ‘It is clear that in the lead-up to the vote volatility in the Pound is expected to be high, as the polls edge back and forth. Given the bearish sentiment currently surrounding sterling there is a high probability that a vote to remain could well see the Pound ratchet sharply higher on a relief rally as investors roll off their Brexit protection.’
With that in mind, it stands to reason that the Pound will decline heavily in response to a ‘Brexit’ vote. However, with the UK unit holding a comparatively weak position already, the depreciation may not be as sharp as the GBP appreciation if the UK votes to remain.
EU referendum campaigning resumed on Sunday, with the markets poised for huge price swings.
Euro (EUR) Exchange Rates Forecast to Struggle as ‘Brexit’ Fears Weigh on Bond Yields
Last week the Euro was outperformed by most of its peers thanks to growing uncertainty regarding the European Central Bank’s (ECB) ability to stimulate economic growth in the Eurozone.
Yields from many bonds linked to developed nations have declined, highlighting reduced confidence in the ECB’s policy outlook. EU referendum uncertainty has also had a significantly detrimental impact on bond yields.
This was mostly evident in German 10-year bunds which turned negative for the first time. Swiss and Japanese bonds were also among those to see vastly reduced yields.
Given that the European Central Bank is currently in the midst of a massive asset-purchase programme, the falling yields could significantly undermine the impact of quantitative easing as prices rise.
‘Since bond yields, what investors get for holding an IOU, move in the opposite direction of bond prices, a falling yield signals a rising price, something that happens when investors increase bond buying. Global markets were stunned Thursday when the yield on Switzerland’s long bond tumbled to less than 0 percent. In other words, investors are now so hungry for the perceived safety of a Swiss government IOU, they will pay Switzerland to hold their money,’ wrote Mike Obel for International Business Times.
Analysts at Bloomberg are now predicting that safe-haven demand will see German bonds surge higher this week, an outcome that will be a very bitter pill for the ECB to swallow.
GBP EUR Exchange Rate Forecast: Will Domestic Data Cause Movement?
As had been mentioned above, domestic data is unlikely to have a significant impact on the GBP/EUR exchange rate over the coming week with the EU referendum dominating investor focus.
With that said, there will still be several ecostats that will be of interest to monitor domestic health.
Perhaps most important for that of the Euro will be Tuesday’s German ZEW Economic Sentiment survey for June. Given recent strained relationships between German bank’s and the ECB, sentiment may have dropped.
The impending EU referendum may also have a detrimental impact on German economic sentiment.
For GBP, domestic data is highly unlikely to feature given how important June 23rd will be. There will be some focus on Tuesday’s Bank of England (BoE) ILTR operation to make sure banks are able to withstand the potential economic shock of Brexit.
The Pound Sterling to Euro (GBP/EUR) exchange rate closed Friday’s European session at a high of 1.2736, but traders can be prepared for massive price swings this week as EU referendum jitters provoke significant market volatility.
