- GBP EUR Hits 1.1289 – EUR GBP Slides to 0.8854
- Theresa May Heads to Brussels to Push Brexit Talks Forward – GBP Bolstered
- Eurozone Trade Surplus Narrows – EUR Encumbered
The Pound Euro exchange rate climbed today in the wake of a narrowing Eurozone trade surplus and news that UK Prime Minister Theresa May is headed to Brussels in an attempt to shift the Brexit deadlock.
Brexit negotiation impetus seemingly returned on Monday with news that May and UK Brexit Secretary David Davis are headed to Brussels to meet with Michael Barnier and EU Commission boss Jean-Claude Juncker.
It has also been revealed that May spent time on Sunday night in discussions with German Chancellor Angela Merkel, with both sides reportedly agreeing on the proposed importance of ‘constructive’ progress.
Despite Downing Street asserting that today’s meeting has been ‘in the diary for weeks’, the market response has been predominantly positive, with investors keen to hear that the UK is moving to push for progress with talks before the Friday EU summit.
Any signs that these talks have resulted in notable progress, especially in regards to the proposed two year transition period, could push things into the Pound’s favour, though traders will also be keeping a keen eye on this week’s notable data releases – like UK inflation, wages and retail sales.
Eurozone Trade Surplus Narrows, Euro Exchange Rates Come Under Pressure
The Eurozone’s trade surplus shrunk in August by €1.4bn year-on-year as demand for imports exceeded the jump in exports.
The overall recorded surplus printed at €16.1bn in August, compared to September’s €17.5bn a year prior and far below the market expectation of a rise to €23.3bn.
August exports demonstrated a rise of 6.8% on the year, whilst import growth jumped by 8.6% to €155.4bn.
Whilst the leap in import growth demonstrates ongoing strength in consumer demand within the bloc, the rate of growth is below the increase recorded in the same period last year.
Ultimately this news weighed slightly on investor demand for the Euro, and with the US Dollar currently rallying on positive comments from Fed Chairman Janet Yellen, markets have shifted away from the single currency.
GBP EUR Outlook: UK Inflation Ahead
The near-term outlook for GBP EUR could significantly change depending on the outcome of a number of data releases this week.
Tomorrow will feature the release of September’s inflation figures for both the Eurozone and the United Kingdom, as well as the UK’s house price index, retail price index, and producer price index.
Beyond this, a range of German and Eurozone ZEW surveys will be released.
Wednesday will feature a speech from European Central Bank (ECB) President Mario Draghi and employment figures for the UK, whilst Thursday will feature UK retail sales.
Markets will, however, be predominantly focused on tomorrow’s UK inflation releases, with inflation within the UK continuing to remain massively above the Bank of England’s (BoE) target.
This has been the primary reason cited by members of the Monetary Policy Committee (MPC) when discussing the need to raise interest rates this November, and with this inflation release being the last one before the November rate decision, it could prove all the more influential.
If the UK’s headline inflation figure climbs to 3.0%, up from 2.9%, (as forecast) then the GBP EUR exchange rate will likely capitalise even further.
