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Analysts Split on Likelihood of Further Falls in 2017 GBP EUR Exchange Rate after Brexit Activation

  • 2017 GBP EUR Exchange Rate Trends at 1.14 – Falls back from Wednesday morning highs
  • Pound Sold as Brexit Bill Passes – Reality of Brexit sets in for GBP investors
  • GBP Forecast: Bank of England BoE Decision This Week – No change expected from BoE
  • EUR ForecastNetherlands 2017 General Election on Wednesday – Euro jitters likely

2017 GBP EUR Exchange Rate Near Week Highs Despite Poor UK Wage Stats

As Wednesday’s European session drew on, the 2017 GBP EUR exchange rate edged back towards the highs seen in the morning due to Dutch election jitters as well as optimism towards Thursday’s upcoming Bank of England (BoE) policy meeting.

Investors are becoming increasingly hopeful that the BoE will adopt a more hawkish tone in its March policy decision and could even hint at an end to ultra-loose monetary policy in the coming months.

However, if the tone taken by policymakers and BoE Governor Mark Carney during Thursday’s meeting is the same cautious and uncertain tone seen in recent meetings, the Pound could fall.

Thursday will also see the publication of the Eurozone’s February Consumer Price Index (CPI) results. If Eurozone inflation beats expectations, it could increase hopes of tighter monetary policy from the European Central Bank (ECB) in the coming year.

[Previously updated 12:55 GMT 15/03/2017]

The 2017 GBP EUR exchange rate was highly volatile on Wednesday as the Pound initially benefitted from an increase in hopes that the Bank of England (BoE) would hike UK interest rates in the coming months – while also being weakened by the day’s UK employment stats.

British employment data for the three months into January 2017 indicated that while the nation’s key unemployment rate had unexpectedly fallen to 4.7%, wage growth had also slowed. This left the Pound fluctuating.

An increasing number of analysts are suggesting that UK households could be in for a squeeze later in 2017 as wage growth slows but consumer prices rise.

Brexit jitters relaxed slightly however, as traders turned their attention to the Netherlands election and Thursday’s BoE meeting.

[Previously updated 16:30 GMT 15/03/2017]

2017 GBP EUR Exchange Rate Falls as Brexit Bill Passes

While Eurozone political jitters kept it away from its worst levels, the 2017 GBP EUR exchange rate slipped on Tuesday and lost most of its Monday gains.

Analysts are now more convinced that the Pound still has the potential to fall once the Brexit begins, largely due to the uncertainty of the process. It is still unclear when the Brexit will begin, but some analysts predict Article 50 will be activated on the 27th of March.

Over in the Eurozone, investors are becoming anxious ahead of Wednesday’s 2017 general election in The Netherlands. If anti-EU candidate Geert Wilders gets more votes than expected in Wednesday’s vote, the Euro is likely to fall.

The process of deciding the coalition government to take power in The Netherlands could take weeks or even months even after results come in. However, most parties have indicated they would not wish to form a coalition with Wilders.

[Previously updated 13:00 GMT 14/03/2017]

Tuesday morning’s movement in the 2017 GBP EUR exchange rate added credence to analysts who believe the Pound could still fall further against the Euro when the Brexit formally begins.

On Monday night, the UK Houses of Parliament passed the Brexit bill without amendments as the House of Commons voted overwhelmingly to not accept the House of Lords’ proposed changes.

The House of Lords chose not to pursue the amendments further and the bill was passed, leaving the UK government on track to activate Article 50 and begin the Brexit by the end of March.

This spooked investors who had been hoping for the Brexit process to be delayed, with the reality that Britain was leaving the EU still sinking in.

This also indicated that the Brexit may not yet be priced into the Pound after all and Pound Euro could still have further to fall on Brexit news in 2017.

[Published 06:00 GMT 14/03/2017]

The 2017 GBP EUR exchange rate was bought up from its recent lows on Monday, but the pair remained volatile amid speculation that the Brexit process could finally begin as soon as this week.

GBP EUR fell from 1.15 to a seven-week-low of 1.13 throughout last week. While the pair recovered to 1.14 on Monday, the Pound lacks the notable support needed to sustain a big recovery.

Pound (GBP) Bought from Cheap Levels after Last Week’s Losses

Despite a lack of fresh supportive data, the British Pound was bought from its recent lows when European markets opened on Monday.

Investors accelerated a Pound selloff on Friday and took profit from these lows on Monday by buying the currency at its cheapest levels since January.

Last week’s Pound selloff was due largely to strength in major rivals, Brexit jitters and a gloomy UK outlook from some analysts.

Analysts have suggested that Britain’s surging inflation (due to Pound weakness) and slowing wage growth could negatively affect the spending ability of UK consumers and drag down the key retail and services sectors.

Sterling also benefitted from hopes that amendments to the Brexit bill from the House of Lords would make it through the House of Commons despite the government’s insistence that the amendments should be cut off.

Euro (EUR) Slips after ECB-Inspired Rally

Amid a lack of fresh supportive Eurozone data on Monday, the Euro failed to hold its best levels against the Pound and fell from the highs seen after last week’s ECB rally.

Demand for the shared currency surged last week as policymakers from the European Central Bank (ECB) took a surprisingly hawkish tone, including ECB President Mario Draghi.

Draghi stated that while inflationary pressures remained subdued, deflation risks in the Eurozone bloc had largely disappeared. This was a significant boost for the Euro.

EUR demand was bolstered further by speculation that the ECB could even hike interest rates before the bank’s quantitative easing (QE) program is scheduled to end in late-2017.

According to sources known by Bloomberg, ECB policymakers discussed whether or not rates could rise before QE ends in its latest meeting.

While the ECB took its usual stance of intending to keep monetary policy near its record lows for the foreseeable future, this shift in tone and speculation was just what the Euro needed to surge last week.

However, this week Eurozone political concerns return to the forefront with The Netherlands holding its 2017 general election on Wednesday the 15th.

2017 GBP EUR Forecast: How Could Pound React to Article 50 Activation?

Speculation is rising this week that UK Prime Minister Theresa May intends to activate Article 50 and begin the formal Brexit process as soon as possible. Traders previously speculated it could begin as soon as this week, but UK officials have recently indicated it would begin at the end of March.

But what should Pound traders expect when the Brexit process begins? Analysts are split on whether the 2017 GBP EUR exchange rate is in for another fall or whether the Brexit is such a foregone conclusion that Article 50’s activation is already priced in.

Merrill Lynch from Bank of America believes the Pound still has further to fall on Article 50’s activation and the Bank of America in general is betting on large swings from Sterling in the coming months;

‘We reject the notion that Sterling has fully priced Article 50 and beyond. Risks to the currency remain to the downside on a disruptive start to negotiations’

Strategists from Morgan Stanley, on the other hand, believe that Article 50’s activation is unlikely to come as a surprise to many investors;

‘There may be many Article 50-related news headlines in the coming weeks but we believe that a lot of the negativity around Brexit-related economic data weakness is already in the price’

Either way, it seems unlikely that Article 50 will give the Pound any kind of boost.

For this week’s news, Wednesday’s UK employment report could bolster the Pound particular if wage growth beats expectations. On the other hand, weakness in the Euro could also allow GBP EUR to recover.

If Tuesday’s German Consumer Price Index (CPI) or economic sentiment surveys from ZEW come in well below expectations, the shared currency could fall. Increasing jitters as Wednesday’s general election in The Netherlands approaches will keep the 2017 GBP EUR exchange rate volatile too.