GBP/EUR Climbs as the Week Draws to and End
- UK Data Disappoints – YoY GDP, house loans and business investment down
- Eurozone Sentiment Bolstered by Greek Deals – Euro recovers despite light data
- Update: Quiet Trade on Friday – UK consumer confidence slightly boosts GBP
- Forecast: German CPI on Monday – While Britain observes bank holiday
The Pound to Euro exchange rate gained on Friday, recovering some of the losses experienced during Thursday’s GBP/EUR slip.
Still below Wednesday’s high of over 1.32, the pair was up around 0.3% on Friday afternoon and trended in the region of 1.3140 at the time of writing.
While GBP/EUR gained around 200 pips throughout the week, the Pound could easily plummet in the coming week if the upcoming slew of Eurozone data prints above expectations.
‘Brexit’ debates are sure to continue heating up with under four weeks until the EU referendum vote. With next week’s British economic calendar relatively light until Wednesday, statements or polls from the ‘Brexit’ debate are most likely to influence Pound movement.
(Previously updated 15:23 27/05/16)
The Pound Sterling to Euro (GBP/EUR) exchange rate’s bullishness ran out on Thursday as the pair dropped from its highs of over 1.32. Mixed UK data (including a slowing of year-on-year GDP in the first quarter) weighed down Sterling, while Eurozone sentiment slightly buoyed the Euro.
Before the close of trading on Thursday, GBP/EUR was down around -90 pips from its best levels as the pair trended in the region of 1.3125. Despite this, the Pound still looked set to make an overall weekly gain against the Euro.
The British currency pushed slightly higher on Friday morning as the UK’s GfK Consumer Confidence index came in at -1 rather than the -4 forecast.
This improvement on the previous result of -3 indicates that consumers are feeling more confident despite the looming EU referendum.
While the data gave the Pound an initial lift, GBP/EUR moved uncertainly as the weekend approached and hit a low of 1.3072.
With the UK due to publish its latest output reports for the manufacturing, construction and services sectors next week, further GBP/EUR volatility is expected.
Germany’s latest inflation data is also liable to have an impact on Euro trading, with an acceleration in consumer price pressures potentially boosting the European currency.
However, if the CPI report for the Eurozone’s largest economy falls short the Pound could push to new multi-month highs.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.3144
Sterling (GBP) Weakens on Mixed GDP as ‘Brexit’ Rows Heat Up
Thursday’s session saw the Pound record a decisive drop after its bullishness in the first half of the week. However, GBP/EUR remained well above the week’s opening levels as the Pound remained sturdy overall.
Data released on Thursday morning was the key reason for Sterling’s drop, with highly anticipated preliminary Q1 Gross Domestic Product (GDP) dominating focus.
While the quarter-on-quarter GDP score printed at 0.4% as expected, the year-on-year print unexpectedly slipped from an initial estimate of 2.1% to 2.0%, a figure that disappointed investors.
Sterling was weighed down additionally by other figures, including the BBA’s latest loans for house purchase report, which dropped from 43,854 to 40,104 rather than improving to 44,700 as expected.
A surprising drop in business investment may have also played a part in the Pound’s slide, with the measure worsening from 3.0% to -0.4% year-on-year.
News that the Pound’s one-month volatility had soared to its highest level in six years against the US Dollar, as reported by Bloomberg, may also have spooked investors.
Euro (EUR) Buoyed on Greek Debt Relief Hopes Despite Lack of Data
The Euro remained sturdy amid the Pound’s struggles on Thursday as sentiment towards the Eurozone’s economy improved.
A deal between the Eurozone and Greece was announced on Wednesday, which some economists had described as a ‘breakthrough’ deal, forged in spite of the difficulties between German finance ministers and the International Monetary Fund (IMF).
While the deal has been seen as a compromise between the two in order to stall for time, the news was nonetheless met positively and boosted the Euro slightly against a weakening Pound.
Reuters wrote;
‘Greece will get most of the next instalment in June to redeem bonds held by the European Central Bank and repay IMF loans, as well as to clear arrears in government payments to the private sector, with the rest paid after the summer.
The ECB is expected to resume accepting Greek government paper as collateral for lending funds to Greek banks within weeks, lowering their borrowing costs, bankers said.’
However, the deal is still considered to be highly conditional, meaning that the Euro’s current boost may be limited.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: Will the Euro’s Recovery Extend?
The Pound could be set to sustain at least 150 pips worth of gains against the Euro this week as it has maintained most of the advance recorded earlier in the week.
The Euro is unlikely to become suddenly bullish against Sterling on Friday due to a quiet economic calendar. Further developments in Greek debt relief could inspire Euro movement, but if Sterling steadies after its Thursday weakness it could mean any potential Euro gains are muted.
Investors may react to GfK’s UK consumer confidence survey which is due for release before the end of the week and is expected to slip from -3 to -4. A result lower than -4 would allow the Euro to make a stronger recovery.
However, investors are more likely to focus on the ‘Brexit’ debate with less than four weeks until the key EU referendum vote.
The ‘Leave’ campaign is expected to ramp up its arguments on migration and some economists anticipate a positive post-‘Brexit’ forecast to be released by the group.
A strong economic forecast for an EU-less Britain would strengthen the ‘Leave’ campaign’s support and could weigh on Pound sentiment. However, continuously strong rhetoric from the ‘Remain’ campaign could see Sterling holding its ground.
