- GBP EUR Exchange Rate Forecast to Slowly Recover – Space for Pound to shake off BoE losses
- BoE Decisions Shock Markets – Pound undermined as bank takes more action than expected
- Forecast: Quiet Economic Calendar for UK – NIESR GDP estimate could pressure Sterling
- Forecast: Eurozone Q2 GDP on Friday – Preliminary figures to indicate health of Eurozone
Positive Eurozone Data Weighs on GBP EUR Exchange Rate Forecast
Despite only having a couple of datasets published on Monday, these optimistic Eurozone figures were enough to keep a potential Sterling recovery at bay.
Sentiment towards the Eurozone was bolstered on Monday morning by news that German industrial production had returned to growth. Scoring -0.9% in June and having a disappointing yearly score of -0.4%, July’s figure of 0.8% beat the 0.7% expectation and brought the yearly figure up to 0.5%.
The Euro was boosted further by Sentix’ latest investor confidence report. Investor confidence had improved from 1.7 to 4.2 going into August, and beat expectations of 3.0. This indicated to markets that the Eurozone had successfully shaken off post-Brexit panic, and would continue as normal for now.
Tuesday sees the publication of UK industrial and manufacturing production reports. However as these figures are from June (before the Brexit vote) they may not heavily influence Sterling movement. NIESR’s July Gross Domestic Product (GDP) estimate may be one to watch however. The NIESR GDP estimate for July is expected to come in at 0.4%, down from previous expansion of 0.6%.
Recent PMI reports indicated that the UK economy contracted by -0.4% in the wake of the nation’s decision to Brexit from the European Union.
Annual Industrial Production is believed to have improved in June while annual Manufacturing Production is estimated to have fallen from 1.7% to 1.3% on the year.
(Previously updated 09:10 BST 08/08/2016)
This week’s relatively quiet economic calendar could give the Pound some breathing space and lighten the GBP EUR exchange rate forecast. For the Pound, July was a rollercoaster of post-Referendum news, weakening the currency due to lower economic outlooks in a post-Brexit Britain.
This upheaval was followed by the Bank of England’s (BoE) recent decision to cut interest rates and unleash some extensive stimulus measures. However, the coming week could offer traders some reprieve with much of the news being of the low-impact variety.
GBP/EUR had climbed up to a weekly high of 1.1973 by Thursday morning, almost reaching that key level of 1.20 before plummeting almost two cents and hitting a three-week-low of 1.1772 following the Bank of England’s (BoE) latest interest rate decision. The pair trended in the region of 1.18 as the week drew to an end.
Sterling (GBP) Plummets as BoE Introduces Four-Point Stimulus Plan
The Pound immediately shed almost two cents of value against the Euro on Thursday last week, after rallying since Tuesday as investors adjusted their positions ahead of the highly anticipated Bank of England (BoE) meeting.
In another edition of the BoE’s ‘Super Thursday’ (but perhaps the first one to be particularly ‘super’), the bank announced that its Monetary Policy Committee (MPC) had voted unanimously to cut UK rates from its previous low of 0.50% to a new record low of 0.25%.
While this was widely expected by markets and would have led to a more muted drop from the Pound, the biggest surprise was the other accompanying easing measures, as well as dovish forecasts. According to the BBC;
‘The Bank announced additional measures to stimulate the UK economy, including a £100bn scheme to force banks to pass on the low interest rate to households and businesses.
It will also buy £60bn of UK government bonds and £10bn of corporate bonds.
Governor Mark Carney said there was scope to cut the interest rate further. …
Mr Carney also took a tough stance on banks and the introduction of its Term Funding Scheme. This will lend directly to banks at rates close to the new 0.25% base rate to encourage them to pass on the lower interest rates to businesses and households.’
The combination of expansive stimulus and grim forecasts for the short to long term future weighed heavily on the Pound, making recovery difficult on Friday.
Euro (EUR) Limp on Mixed Eurozone Data
The Euro failed to completely capitalise on Sterling’s Thursday plummet, as data printed throughout last week reminded investors that the Eurozone’s economy wasn’t in the best shape – Brexit or not.
Markit’s core July PMIs impressed investors earlier in the week, revealing that the Eurozone’s economic activity had generally expanded from June to July despite fears that the Brexit vote had undermined the economy in some way as it has done with Britain’s.
Instead, Eurozone Composite PMI indicated that the currency bloc had been very resilient to ‘Brexit jitters’, and that the economy’s movement was largely on track.
However, the data released later in the week reminded investors that while the Brexit may not be the Eurozone disaster some expected it to be, the Eurozone still has its own domestic issues to worry about.
July’s Retail PMIs, for example, revealed that while retail improved from June to July, there was still a concerning contraction of 40.3 in Italy’s retail sector which kept Eurozone retail down at 48.9.
Friday’s session continued this trend as German factory orders contracted in June from 0.1% to -0.4%, rather than improving to 0.5% as expected. This dragged the yearly score down from -0.2% to -3.1%.
As a result of this and a surge of appeal in the US Dollar, the Euro’s strength was undermined slightly towards the end of the week, reducing its ability to capitalise on the weak Pound.
GBP EUR Exchange Rate Forecast: Space for Sterling to Recover?
The coming week’s economic calendar is a lot quieter, especially for Britain. Now that markets have a more solid idea of how the UK and Eurozone economies are reacting to the EU Referendum’s result, movement in the Pound to Euro exchange rate could be less profound this week.
On the other hand, Sterling has a real chance to recover this week due to a lack of ecostats that have a chance of being considerably grim.
This gives investors space to leave their short positions and purchase the Pound at its new lows – a move which could see Sterling gradually advance in quiet corrective throughout the week.
There will be no key UK data until Tuesday, which will see the publication of June’s manufacturing and industrial production reports, as well as the June update to Britain’s trade deficit figures.
As these figures are from June, they are unlikely to have a large influence on the Pound’s movement as Britain’s economic landscape has shifted so drastically since late-June.
The Eurozone’s calendar is a lot more eventful, particularly later in the week. While German industrial production and Eurozone investor confidence reports are due on Monday, highly anticipated preliminary Q2 growth results will be published on Friday.
With the Brexit now slightly less of a concern to Eurozone investors, markets will be focused on seeing how the Eurozone’s economic growth has progressed between June and April.
These Q2 Gross Domestic Product (GDP) reports, as well as Germany’s final July inflation figures will likely be the most influential reports for this week’s GBP EUR exchange rate forecast.
