- ‘Brexit’ Lift for EUR GBP – UK PM expected to detail plans for a ‘hard Brexit’ on Tuesday.
- Euro Strengthened by Trade Data – Eurozone trade surplus grows.
- German ZEW Survey Ahead – Euro expected to rise following jump in economic sentiment.
The EUR GBP exchange rate rallied to a two-month high this morning as the Pound stumbled in advance of UK Prime Minister Theresa May’s speech outlining her plan for ‘Brexit’.
Euro Pound (EUR GBP) Rises in Advance of PM Speech
The Euro Pound (EUR GBP) exchange rate surged at the start of trading today as investors expect Theresa May’s speech to indicate that the UK will be headed towards a ‘hard Brexit’.
Observers expect that the Prime Minister will outline her plans to gain greater controls over EU immigration, likely at the expense of retaining access to the single market, as EU officials have repeatedly stated that freedom of movement and free market access is a package deal.
Traders fear that the loss of the single market will greatly impact the British economy, particularly the financial sector.
Markets are also concerned that there will still be a great deal of uncertainty surrounding the British government’s plans for ‘Brexit’ as May is not expected to publish her full plans for how the UK will leave the EU. As Kathleen Brooks, analyst at City Index, explained;
‘The FX market has spoken, and, as of Sunday night, it is not confident that Theresa May can deliver the necessary clarity and confidence when she lays out her Brexit plans.’
Euro (EUR) Bolstered by Trade Data
The Euro was also strengthened by the release of the latest Eurozone Trade Balance figures this morning.
The report showed that the Eurozone’s trade surplus grew from €20.1bn to €25.9bn in November, outpacing forecasts that it would only rise to €22bn and causing analysts to predict that it indicates a Q4 rise in Eurozone GDP. As IHS Markit chief economist, Howard Archer said;
‘An improved traded good performance in November is supportive to belief that Eurozone GDP growth improved in the fourth quarter of 2016.’
EUR GBP Exchange Rate Forecast: German ZEW Survey Ahead
The EUR GBP exchange rate is likely to rise even further tomorrow, even excluding May’s speech, as Germany releases its latest ZEW Survey. The report is expected to show that Economic Sentiment rose from 13.8 to 16.5 in January as the recent uptick in economic data causes economist to become more optimistic about the mid-term future of the German economy.
Meanwhile the UK will release its latest Consumer Price Index, which is expected to show that inflation rose from 1.2% to 1.4% in December, due to the weaker Pound. However it is unlikely that Sterling will show much upward movement from the release as investors remain focused on the PMs ‘Brexit’ speech.
Looking further ahead, the Pound could rally if the UK Supreme Court rules against the government in its case to trigger Article 50 without a vote in parliament as investors believe that opposition MPs and some Tory backbenchers could potentially block the ‘Brexit’ process until assurances are made that the PM will seek to retain maximum access to the single market.
Current Interbank Exchange Rates
At the time of writing the EUR GBP exchange rate was trending around 0.87 and the GBP EUR exchange rate was trending around 1.13.
