GBP/EUR Solidifies Gains after Bullish Week
- Pound (GBP) Rally Continues Through Wednesday– ‘Brexit’ bets continue to drop
- German Data Largely Positive– Euro (EUR) remains relatively flat however
- British GDP Disappoints– Annual growth short of forecasts
- Forecast: Can Euro Recover?– Eurozone inflation data due on Monday and Tuesday
Sterling looked set to complete a weekly gain of around 200 pips against the Euro on Friday afternoon as GBP/EUR trended well above 1.31, in the region of 1.3140. While still below its Wednesday best, Sterling ended the week on a positive note with the pair up around 0.3%.
Next week’s trading session could prove a different story however, with the Euro likely to take point in GBP/EUR movement.
A bustling Eurozone economic calendar could dominate investor attention next week, starting with German Consumer Price Index (CPI) on Monday, followed by general Eurozone inflation and Eurozone labour figures on Tuesday.
Monday trade could be especially quiet for the Pound unless ‘Brexit’ debates influence Sterling movement abroad, as British markets will be closed for a UK bank holiday.
(Previously updated 12:56 27/05/16)
GBP/EUR Drops Further on Thursday as Greek Deal Improves Eurozone Sentiment
The Pound to Euro exchange rate dropped further from its best levels on Thursday as it trended closer to 1.31 than its Wednesday high of 1.32.
Poor UK data, including GDP, weighed on Sterling sentiment throughout the day. BBA’s April loans for house purchase report dropped from 43,854 to 40,104, while business investment entered negative territory if -0.4% year-on-year.
The Euro, on the other hand, has benefitted from the Greek debt relief reported on earlier.
While the news did little to boost Euro sentiment on Wednesday or Thursday morning, the shared currency was bolstered against some of its rivals (including the Pound) as more investors reacted with optimism towards news that the Eurozone would ramp up Greek debt relief measures.
However, before the weekend the Pound derived some measure of support from an unexpected improvement in the UK’s GfK measure of consumer confidence.
The increase from -3 to -1 was notably better than predictions for a reading of -4.
The GBP/EUR exchange rate began the week trending in the region of 1.29 so the pairing is still likely to enter the weekend up almost 2 cents.
If support for the ‘Remain’ camp in the EU referendum campaign continues next week, the Pound could push higher still against its European rival.
The UK’s Manufacturing, Services and Construction PMIs are also likely to have an impact on GBP/EUR trading.
Earlier…
(Previously updated at 14:42 on 26/05/2016)
UK GDP Prints at 2.0% on the Year in Q1
After striking a fresh multi-month high on Thursday, the Pound Sterling to Euro (GBP/EUR) exchange rate was left trending in the region of 1.3160 on Thursday as the UK’s Q1 GDP data slightly disappointed expectations.
While the quarter-on-quarter result of 0.4% was in line with expectations, the annual figure of 2.0% was less than the 2.1% growth projected.
According to The Guardian, industry expert Joshua Mahony said of the result;
‘The downward revision of GDP to 2% suggests that perhaps the recovery we have been looking for after 18 months of slowing growth just isn’t there. Perhaps the most telling figure today was the Q1 business investment reading, which contracted for the second consecutive quarter.
This is a clear indication of the fear that firms are experiencing regarding the effects of a Brexit and makes you wonder what this number would look like in the event the UK left the EU.
The downward revision of GDP to 2% suggests that perhaps the recovery we have been looking for after 18 months of slowing growth just isn’t there. Perhaps the most telling figure today was the Q1 business investment reading, which contracted for the second consecutive quarter.
This is a clear indication of the fear that firms are experiencing regarding the effects of a Brexit and makes you wonder what this number would look like in the event the UK left the EU.’
Subsequently, the Pound dipped against the Euro as the European session progressed, with GBP/EUR hitting a low of 1.3123.
Tomorrow’s UK Consumer Confidence report may be the next major cause of GBP/EUR exchange rate movement, although Germany’s retail sales report is also liable to have an impact on the pairing before the weekend.
(Previously updated 08:30 26/05/2015)
The Pound Sterling to Euro (GBP/EUR) exchange rate saw a second session of gains on Wednesday as investors continued to react optimistically to polls suggesting that a ‘Brexit’ is increasingly unlikely. The Euro fought back with solid German data, but failed to weigh Sterling down.
Before the close of Wednesday’s session GBP/EUR was up around 0.7% on Wednesday’s opening levels and trended in the region of 1.3211. The pair has gained around 250 pips since trading began this week.
However, the Pound failed to hold above the 1.32 level and slipped back to trading in the region of 1.3178 ahead of the release of the UK’s first quarter growth data.
Sterling (GBP) Rallies as Economists Ramp up ‘Brexit’ Warnings
Moving almost entirely on fierce ‘Brexit’ debates this week, Pound traders scarcely noticed Tuesday’s poor data – which revealed the Treasury had missed its net borrowing targets, and that PSNCR’s public finances figures had entered negative territory.
Instead, Sterling rallied on Tuesday after the results of the Telegraph’s latest ORB poll revealed that an increasing amount of men, over-65s and Conservative supporters were swaying from the ‘Leave’ campaign to the ‘Remain’ campaign.
The Pound continued to rally throughout Wednesday, with investors seemingly ignoring a new YouGov poll that indicated an even split between the ‘Remain’ and ‘Leave’ campaigns.
Sterling’s gains were extended further as an increasing number of independent economic organisations have been issuing warnings on the possible effects of a ‘Brexit’.
This includes the Institute for Fiscal Studies (IFS) who claimed that a ‘Brexit’ could extend British austerity for as much as two years, and new comments from the World Trade Organisation (WTO) reported by Yahoo;
The WTO estimated the cost of additional tariffs on goods imports to British consumers after Brexit would amount to £9 billion, while British merchandise exports would be subject to a further £5.5 billion in tariffs.
Mr Azevedo told the Financial Times: “The consumer in the UK will have to pay those duties. The UK is not in a position to decide ‘I’m not charging duties here’. That is impossible. That is illegal.”
Euro (EUR) Flat Despite Optimistic German News
The Euro continued to be weighed down by European Central Bank (ECB) warnings and economic concerns on Wednesday as strong German data was unable to help EUR hold its ground.
GfK’s German consumer confidence survey for June improved from 9.7 to 9.8, despite being projected to remain at 9.7.
This was followed by the IFO’s German reports for May. Business climate improved to 107.7 from 106.6, current assessment reached 114.2 from 113.2, and expectations grew to 106.6 from 100.8. All of these reports printed above expectations of 106.8, 113.3 and 100.8 respectively.
It’s possible that Monday’s poor Eurozone PMI reports (which saw the Eurozone’s Composite figure worsen from 53.0 to 52.9) alongside Tuesday’s poor ZEW economic sentiment report, have weighed heavily on the Euro.
Investors may also be wary of the Euro as a new agreement on the Greek debt crisis appears to have been reached, Reuters reports;
‘The Eurozone agreed to offer Athens debt relief in 2018 if that is necessary to meet agreed criteria on its payments burden. In the meantime, the currency area’s rescue fund was given approval to take steps to smooth out Greece’s debt service path.’
While the deal was met positively in financial markets, Euro movement has been muted thus far as investors are likely to await further developments before acting.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast to be Influenced by UK News
With no influential Eurozone reports due until next week, the GBP/EUR exchange rate will certainly see its movement focused around the Pound for the week’s remaining trade sessions.
However, the movement may not all be in the Pound’s favour as investors currently readjust their positions ahead of Thursday’s vital UK Gross Domestic Product (GDP) report, which will be released alongside April’s BBA loans for house purchase report.
While Britain’s preliminary Q1 GDP is estimated to print at 0.4% quarterly and 2.1% yearly, the UK’s recent economic struggles could lead to a worse-than-expected GDP score, which would certainly weigh down the Pound’s currently bullishness.
If GDP prints positively however, Sterling could continue its current strength – especially if ‘Brexit’ debates continue to flow in the ‘Remain’ campaign’s favour as they have done this week.
The Euro, on the other hand, still has the potential to be influenced by potential statements from European Central Bank (ECB) policymakers, or developments in the Greek debt relief deal.
Yesterday the Pound Sterling to Euro (GBP/EUR) exchange rate achieved a high of 1.3218