- Euro (EUR) Sentiment Boosted by USD Weakness– Euro favoured ‘safe’ currency
- Pound (GBP) Extends Losses on ‘Brexit’ Polls– Perceived increase in ‘Leave’ voters
- Update: Eurozone Q1 GDP Positive– As well as German industrial data
- Update: UK Production Beats Expectations– But Pound remains flat
- Forecast: Trade Figures Due Thursday – UK trade deficit and German trade surplus
EUR/GBP Edges Upwards Throughout Wednesday
The Euro to Pound exchange rate fluctuated for much of Wednesday’s trade session before eventually moving in the Euro’s favour, despite positive UK data.
It’s likely that the Euro’s current strength is a result of the continued lack of appeal in the US Dollar, as well as Tuesday’s positive Eurozone growth report. Meanwhile a fresh slew of optimistic UK data did nothing to continue the Pound’s Tuesday bullishness.
Industrial and manufacturing production reports came in well above expectations. Industrial production improved from -0.2% to 1.6% year-on-year despite being expected to worsen to -0.3%, while the manufacturing score soared from 0.1% to 2.3% despite projections of a stagnant score.
NIESR’s latest UK Gross Domestic Product (GDP) estimate also improved, with the previous score being readjusted to 0.4% and the new May figure coming in at 0.5%.
Despite this, Pound investors focused entirely on ‘Brexit’ concerns, allowing a sturdy Euro to advance.
(Previously updated 16:17 7/06/16)
The Euro to Pound Sterling (EUR/GBP) exchange rate started the week off bullishly after a fresh set of EU Referendum polls released on Monday caused investors to increase their ‘Brexit’ bets.
While Eurozone data was quiet on Monday, EUR/GBP gained around 0.4% from the week’s opening levels of 0.7830. The pair trended in the region of 0.7865 on Monday afternoon.
However, the Euro gave back some of its gains overnight and the EUR/GBP exchange rate struck a low of 0.7750.
The Euro consolidated these losses despite first quarter Eurozone GDP figures exceeding estimates.
According to Reuters:
‘The rate of growth matched the level in the first quarter of 2015, a pace only surpassed at the start of 2011, when the Eurozone economy raced ahead at 0.9%.
The greatest contributions to overall Eurozone GDP were household spending and private sector investment. Inventory changes and public sector spending were also positive, but imports increased by more than exports.’
UK data may be the driving force behind Euro to Pound Sterling (EUR/GBP) exchange rate movement tomorrow, with manufacturing and industrial production data scheduled for publication.
NIESR is also due to release its latest GDP estimate.
A reading above 0.3% could lend the Pound support but GDP of 0.3% or lower is likely to undermine demand for Sterling.
(Previously updated 17:25 06/06/2016)
Euro (EUR) Bolstered as Major Rivals Struggle
While Eurozone data was relatively quiet on Monday, the Euro remained sturdy against many majors and gained considerably against the weakening Pound due to factors in the foreign exchange market.
One core reason for the Euro’s strength was the US Dollar’s bearish session last Friday. The highly anticipated Non-Farm Payroll (NFP) reports revealed a considerably low change of only 38k.
As a figure that Federal Reserve officials use to indicate US economic health, the report was met with widely negative sentiment as bets of a Fed rate hike plummeted, alongside appetite for the US Dollar.
The Euro also benefitted as many risk-off traders who moved from the US Dollar to the Japanese Yen were talked away from the Yen on Monday.
Jawboning from Japanese officials prevented the Yen from becoming too overvalued against the Dollar, and as a result the Euro was seen as a relatively appealing ‘safe’ currency compared with its rivals.
This favour for the shared currency came despite last week’s mixed data, which saw Eurozone Composite PMI print at 53.1 in its final May report (beating expectations), while retail sales worsened from 1.8% to 1.4% year-on-year.
Pound (GBP) Slumps as New ‘Brexit’ Polls Worsen Volatility
The Pound fell across the board once more in what seems to be an increasingly common trend for Sterling in the last few weeks.
Various EU referendum polls are released early in the week, and investors use the changes in trends to weigh up their ‘Brexit’ bets. This week marks the second consecutive week where those polls have indicated that the ‘Leave’ campaign was becoming more popular amongst voters.
A new poll conducted by The Guardian showed that the ‘Leave’ campaign was ahead at 43%, while the ‘Remain’ campaign trailed behind at 40%. According to the Guardian, the ‘Remain’ camp had lost 4% in the last two weeks.
Sterling volatility also soared on Monday morning, as markets quickly reacted to the release of these new polls. Bloomberg reports;
‘The pound dropped to a three-week low after polls showed more Britons favored quitting the European Union, reviving concern the June 23 referendum will throw global markets into turmoil and undermine confidence in the 28-nation trading bloc.
Sterling fell against all of its developed-market peers after three surveys Monday showed a lead for the ‘Leave’ campaign. A gauge of anticipated swings against the dollar in the next month surged to a 7 1/2-year high.’
Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast: Volatility to Continue
The Euro’s upcoming movement could easily be influenced by the fluctuating strength of the US Dollar, as investors continue to readjust their positions on the Dollar after last week’s NFP reports.
Any key statements from Fed policymakers could see the Euro strengthen or weaken depending on if policymakers downplay the importance of the NFP scores or not.
Tuesday’s session will also see the release of relatively influential Eurozone prints, including German industrial production, and the Eurozone’s final Q1 Gross Domestic Product (GDP) score. GDP is currently expected to meet the preliminary scores of 1.5% year-on-year.
The Pound, on the other hand, looks set to experience worsening volatility in the coming weeks as the EU referendum vote approaches, according to the BBC;
‘According to Paul Hollingsworth, UK economist at Capital Economics, a vote for leave could trigger an immediate fall in the value of Sterling.
However, he believes the severity of the fall would be determined by what the opinion polls say over the next few weeks.
… On balance, he believes that a vote to leave the EU would cause a 10%-20% fall in the pound.
Mike Amey, a managing director at Pimco, the world’s largest bond fund believes it would be more like 5% to 10%.’
With investors increasingly focused on ‘Brexit’ debates with around half a month until the EU Referendum vote, UK data may become slightly less influential on Sterling movement.
Nonetheless, if ‘Brexit’ rows don’t take hold of Pound movement on Wednesday, it is likely the Pound could instead react to the scores of Wednesday morning’s industrial and manufacturing production reports.
