While the Pound to Euro exchange rate fell from its highs on Friday afternoon, the pair looked to end the week’s European trade session at least a cent above its opening levels.
For most of Friday, GBP EUR comfortably trended above the key level of 1.18.
However, investors lost interest in the Pound on Friday afternoon as they anticipated a week of mostly quiet data ahead.
No major developments in Article 50 or Brexit talks are expected next week, despite it being the first week of March.
The UK government expects to begin the formal Brexit process by the end of March.
Instead, GBP traders will be focused on February PMI data from Markit due for publication later in the week. The services print will be particularly important due to UK retail sales concerns.
[Previously updated 13:01 GMT 24/02/2017]
A lack of new economic news and data for Britain or the Eurozone on Friday left the Pound to Euro exchange rate seeing only modest movements throughout the day.
GBP EUR looked to end the week above the level of 1.18, though it slipped early on Friday afternoon as some investors bought the Euro from its lows.
While concerns of a populist Marine Le Pen win in this year’s France election left the Euro in a persistently weak state, some traders became hopeful that frontrunner Emmanuel Macron would have a higher chance of winning thanks to the backing of centrist politician Francois Bayou this week.
[Published 06:00 GMT 24/02/2017]
The Pound to Euro exchange rate put in solid gains on Thursday, despite fresh German data rounding off a good overall week for Eurozone news.
Thursday’s data included news that Germany was officially the best performing major economy of 2016. Germany’s Gross Domestic Product (GDP) for the year came in at 1.9%.
The final Q4 growth stats for Germany met expectations. Year-on-year growth came in at 1.2% in Q4, while the quarter-on-quarter figure printed at 0.4%.
These results were nothing new, but they did confirm that Germany’s economy more or less withstood any shock from the Brexit vote. Carolynn Look from Bloomberg commented;
‘Germany’s performance in the fourth quarter suggests the economy is sturdy enough to cope with challenges that may arise from national elections, Brexit, and a more protectionist US administration.
Unemployment is at a record low and business confidence is rising, and the Bundesbank has cited a “very dynamic” order intake as a factor driving future momentum.’
Thursday’s Eurozone data also saw Germany’s budget surplus hit a record high of €23.7b in 2016.
The Euro failed to capitalise despite this slew of optimistic data partially because the growth results were widely expected and as a result didn’t surprise any EUR traders.
Concerns about the rising popularity of anti-EU French Presidential candidate Marine Le Pen also weighed on the shared currency, as it had done for most of the week.
Two polls published on Thursday indicated that Le Pen would be the favourite to win the first round of the French Presidential election. However, the same polls showed she would likely lose in the second round against either opponent – Francois Fillon or Emmanuel Macron.
The polling gap between Le Pen and her opponents has been narrowing in recent weeks, with her chances against against frontrunner Macron doubling.
This underlying downside pressure, as well as some optimism in GBP traders this week, has meant easy gains for the Pound to Euro exchange rate.
While GBP EUR fell from two-month-highs earlier in the week due to mixed UK growth results and a grim 2017 growth outlook, the British currency advanced again on Thursday due to inflation forecasts.
Polls published by Citi bank and YouGov on Thursday revealed that the British public’s inflation expectations for this year were at their highest levels in over three years.
Comments from Citi economists Christian Schulz and Ann O’Kelly also increased hopes among traders that the recently cautious Bank of England (BoE) may be forced to act after all;
‘We cannot rule out second-round effects when households and businesses negotiate wages and rents, perpetuating higher inflation beyond the current spike,
If the economy does not cool over the coming quarters, the BoE’s Monetary Policy Committee may come under pressure to raise Bank Rate from its current low of 0.25 percent, despite Brexit uncertainty.’
This slight increase in BoE tightening bets helped the Pound to make the most of Thursday’s limp Euro trade.
The Pound to Euro exchange rate is unlikely to see considerable movement on Friday amid a lack of fresh ecostats due for publication.
Instead, traders will be looking ahead of next week’s data which includes UK PMIs for February and German employment stats.
As a result, GBP EUR is likely to comfortably end the week above its opening levels.