With Brexit officially getting underway this week, forecasts are gloomy for the Pound to Euro exchange rate.
- GBP EUR traded between 1.15-1.16 last week – Brief EUR GBP rise from 0.86-0.87 seen
- Wednesday to bring Brexit trigger – Article 50 activation likely to worsen GBP EUR rate
- Mixed forecasts for UK GDP – Will Euro be damaged by Brexit start?
- Eurozone confidence data out this week – Falling inflation could limit EUR demand
The Pound was blessed with a pair of forecast-beating data releases last week, covering inflation and retail sales. These results pushed the Pound up against the Euro, at one point causing a rate rise from 1.15 to 1.16.
This week, however, Sterling could be in for monthly or even annual losses against the Euro after Wednesday’s developments.
Just over 9 months after the UK voted to leave the EU, the process will officially start this week when Prime Minister Theresa May triggers Article 50 on Wednesday.
Once her message is received by EU officials, the UK-EU separation process will have begun and negotiations could start before the end of the week.
Forecasts are already dark for the effects this could have on the Pound – former Bank of England (BoE) official David Blanchflower has stated;
‘The Brexit vote is now starting to have major negative consequences and it is only going to get worse’.
Additionally, another former BoE policymaker, Andrew Sentance, has forecast;
‘2016 was the weakest year for business investment since the financial crisis. This is possibly a sign that uncertainty associated with the EU referendum is having a dampening impact on investment plans, and this uncertainty is likely to persist over the next couple of years as Article 50 negotiations with the EU proceed’.
If the GBP EUR exchange rate isn’t sent into a negative slump by the Brexit event, the Pound could still decline this week when GDP stats are released on Friday.
Covering finalised growth in Q4, the figures are expected to show a quarterly rise and annual fall; annual figures are usually more impactful so this may further worsen GBP EUR trading.
For the Euro this week, the Brexit trigger could also damage EUR GBP trading. This is due to forecasts of both the UK and the Eurozone suffering because of Brexit, though the Pound is still expected to be worse off from Wednesday’s event.
Direct Eurozone data will cover German confidence on Monday and Eurozone confidence on Thursday. The German Ifo stats are expected to stagnate or fall, but some gains are expected for the Eurozone versions.
Ending weekly trading will be Friday’s Eurozone-wide inflation flashes, which may lower the Euro’s value if they drop as forecast.
Recent GBP EUR Interbank Exchange Rates
At the time of writing, the Pound to Euro (GBP EUR) exchange rate was trading at 1.15 and the Euro to Pound (EUR GBP) exchange rate was trading at 0.86.