Pound to Euro Exchange Rate Struggles to Hold Highs Despite Bank of England (BoE) Bets
Despite a solid climb on Wednesday in reaction to the latest UK services PMI results, the Pound Sterling to Euro (GBP/EUR) exchange rate trended lower again on Thursday morning. Brexit jitters kept pressure on Sterling (GBP) while the Euro (EUR) was bolstered by German data.
Bank of England (BoE) interest rate hike bets may have risen this week, but GBP/EUR is unlikely to recover to last week’s opening level of 1.1377.
So far this week, GBP/EUR has climbed from the week’s opening level of 1.1296. GBP/EUR briefly touched a high of 1.1363 on Wednesday, but at the time of writing on Thursday the pair trended closer to the level of 1.1325.
Sterling failed to hold all of its gains despite higher BoE interest rate hike bets, as Brexit jitters persisted thanks to fresh warnings from car businesses that thousands of jobs could be at risk if a ‘no deal’ Brexit becomes reality.
The Euro benefitted from Sterling weakness thanks to the morning’s solid German factory orders results.
Pound (GBP) Exchange Rates Pressures by Fresh Brexit Warnings from Businesses
Demand for the Pound was bolstered by better-than-expected UK PMI stats in the first half of the week, and Wednesday’s UK services PMI was enough to make investors more confident that the Bank of England (BoE) would hike UK interest rates in August.
However, as a BoE rate hike in August had already been speculated for some time and other uncertainties persisted, the Pound’s potential for gains was limited.
Sterling was kept under pressure by the strength of rivals like the Euro, as well as continued warnings from UK businesses about the negative impact of a potential ‘no deal’ Brexit.
Carmaker companies JLR and Tata Motors both issued warnings that a possible hard Brexit could lead to major job losses. According to PB Balaji, Chief Financial Offer at Tata Motors Group:
‘Jaguar Land Rover and Tata Motors have always maintained that the uncertainties from Brexit are avoidable and the business seeks clarity to ensure that industry takes timely and right decisions to manage the transition.’
It put fresh pressure on the UK government, as UK Prime Minister Theresa May struggles with ideological fissures on the angle of the Brexit process within her own Conservative party.
Euro (EUR) Exchange Rates Supported by Signs of Strength in German Factor Activity
The Euro has been mixed performance this week and has struggled to avoid losses against Sterling, but the trend of data seen this week has indicated to investors that things are improving in the Eurozone.
Wednesday’s Eurozone services and composite results beat projections, indicating that the slowdown in Eurozone growth seen earlier in the year was over and making investors more optimistic about the second half of 2018.
Thursday’s session followed with the publication of Germany’s May factory orders results, which bounced back strongly from the poor performance seen in past months.
German factory orders were forecast to improve to 1.1% in May, but the monthly figure instead surged to 2.6%. The previous figure was revised higher too, from -2.5% to -1.6%.
While June’s German construction PMI was disappointing, the factory orders data supported the view that the Eurozone’s economic slowdown earlier in the year was temporary. This bolstered Euro strength and helped the Euro to push GBP/EUR down from weekly highs.
Pound to Euro (GBP/EUR) Forecast: German Industrial Production in Focus
Brexit concerns and uncertainties are likely to drive Pound movement for the remainder of the week, unless there are comments from Bank of England (BoE) officials that bring market attention back to BoE interest rate hike bets.
The possibility of a BoE interest rate hike in August still supports the Pound outlook, but Brexit warnings from economists and businesses are keeping a cap on the British currency.
The only notable UK data on Friday will be the final Q1 labour productivity report, which is unlikely to be particularly influential.
Instead, GBP/EUR investors will be more focused on Germany’s May industrial production results, or France’s May trade balance results.
As it stands now though, the pair is on track to end the week slightly higher – but still well lower than the levels it saw throughout June.
Looking ahead, next week will be a busier one for Euro trade as major Eurozone confidence and inflation stats could influence the Pound to Euro (GBP/EUR) exchange rate.
