- Euro Attempts to Reclaim Ground – German data impresses
- ECB Concerns Continue – Nowotny claims negative rates are necessary
- BHS Enters Administration – No lob losses yet
- Forecast: Can Pound Rally Continue? – Eurozone CPI Ahead
EUR/GBP Edges Higher Ahead of Eurozone CPI Report
With the UK’s GfK Consumer Confidence report showing a decline in sentiment, the EUR/GBP exchange rate was able to edge higher on Monday morning.
However, the pairing could swiftly reverse gains if the Eurozone’s Consumer Price Index details a slowing in inflation.
As it stands, the Euro to Pound exchange rate is trending in the region of 0.7789
Euro (EUR) Edges Higher on German Confidence Data
The Euro to Pound Sterling (EUR/GBP) exchange rate edged away from recent lows during Wednesday’s European session as investors responded positively to the news that Germany’s GfK Consumer Confidence index showed improvement.
The sentiment gauge had been forecast to hold at 9.4 but actually advanced to 9.7.
Demand for the Pound was also dented as the UK’s 1Q GDP report detailed a slowing in quarterly growth from 0.6% to 0.4%.
The rate of annual expansion was slightly better than projected, coming in at 2.1%.
The EUR/GBP exchange rate is currently trending in the region of 0.7769
With German inflation data scheduled for release on Thursday, EUR/GBP could experience more movement. An uptick in consumer price pressures would be Euro supportive.
EUR/GBP Extends Losses Today
The Euro remained uninspired through Tuesday’s session as no key data had been released from the Eurozone, leaving the shared currency to flounder and sustain more losses against a surprisingly bullish Pound.
Poor BBA mortgage approvals data from Britain was unable to put much of a dampener on the Pound’s spirits. The report scored 45,098, disappointing expectations of 46,500.
Sterling sentiment remained solid however as an updated poll released by The Telegraph indicated a higher expected turnout for ‘Remain’ campaign voters on EU Referendum day.
Investors are likely to set their sights on Wednesday morning’s UK GDP going forward, currently tipped to slow from 2.1% to 2.0% on the year.
The Pound steadily reversed the Euro’s attempts to rally later in Monday’s session as the poor German IFO scores entrenched themselves and new ‘Remain’ campaign statements further increased bets that a ‘Brexit’ would not occur in June.
Britain’s Home Secretary Theresa May spoke around midday, arguing of the importance for the UK to remain in the European Union and change it from the inside. The BBC reports;
‘While “the sky would not fall” in the event of Brexit, she said she had concluded it was a matter of “hard-headed national interest” to remain in, based on security, trade and prosperity.
“Remaining in the EU does make the UK more secure, prosperous and influential beyond our shores,” she said.’
The UK’s mortgage approvals report failed to prevent Sterling extending gains against the Euro as Tuesday progressed despite the lending figure coming in lower-than-forecast.
US data may also have an impact on the Euro today. The nation is set to publish high profile Durable Goods Orders, Services/Composite PMI and Consumer Confidence figures and any results which weigh on Federal Reserve interest rate hike expectations could send the common currency higher.
The Euro to Pound Sterling (EUR/GBP) exchange rate endured its second consecutive week of losses last week as a new series of polls and political sentiment indicated increasing favour towards the ‘Remain’ campaign ahead of the EU referendum and poor data throttled the Euro.
After a brief attempt to rally last Monday, EUR/GBP ultimately lost over -150 pips during last week’s session. The Euro is currently attempting to fight back and is up around 0.2% from Monday’s opening levels of 0.7793. EUR/GBP is currently trending in the region of 0.7800.
Poor Eurozone Data, Dovish ECB Weigh on Euro (EUR)
Monday opened with the Euro dropping by around -40 pips briefly in response to further dovishness from the European Central Bank (ECB).
Governing council member Ewald Nowotny spoke about negative interest rates and defended the central bank from German finance critics in an Austrian newspaper interview published on Saturday. Reuters reports on the piece;
“You have to discuss negative rates in a broad context,” the head of the Austrian central bank was quoted as saying by the newspaper Der Standard on Saturday.
They are part of the central bank’s efforts to stabilize Europe’s economic situation after a severe crisis, he said. “Now it is all about preventing Europe from dropping into deflation.”
He said that he would welcome it if interest rates could be raised again “the sooner the better”, but that the conditions must be right.
“This will happen as soon as the economy is doing better, business activity picks up and inflation gets higher.”
Investors saw his words as an indication that negative rates could become even more prominent in future easing measures and accordingly reacted with wariness towards the Euro.
Monday morning also saw the release of German IFO reports, which unfortunately all printed below expectations. April’s business climate report fell from 106.7 to 106.6, the current assessment drooped from 113.8 to 113.2 and expectations only grew from 100.0 to 100.4, undercutting a projected score of 100.9.
Pound (GBP) Holds Ground on Promising NCP Polls, Pressured by BHS Administration
Late last week the Pound was given a considerable boost by an updated report from Number Cruncher Politics (NCP).
As reported by Bloomberg, NCP calculated around a 20% chance that Britain would vote to leave the EU in June – a figure derived from aggregating poll results and analysing previous voter preferences. The calculation is generated by political blogger, Matt Singh.
Investors acted bullishly towards the Pound in response to the report as fears of a ‘Brexit’ diminished. However, Sterling investors became wary again on Monday morning as over 10,000 jobs were put at risk.
UK retail chain British Home Stores (BHS) announced on Monday morning that it would enter administration. This follows months of rumours that the company was facing considerable financial issues, as well as failed attempts to sell or trade stores with other companies in order to keep the business afloat.
The BBC reports that potential buyers were turned off by the BHS’ £571m pension deficit and no buyer would accept the deficit as part of any potential sale deal.
With such a huge amount of pension money unlikely to be saved and almost 11,000 jobs under threat, investors are currently increasingly cautious towards the Pound.
Euro to Pound Sterling Exchange Rate Forecast: BHS Developments Likely to Drive EUR/GBP
Forex markets, staff and customers alike hope for the best for the thousands of staff members currently employed by British Home Stores (BHS). The company officially announced it would enter administration on Monday morning and further developments are expected.
If a potential buyer is found, the Pound may recover as investors react positively to the saving of 10k+ jobs. However, as past sale deals have failed, analysts are not hopeful that a deal will be made.
The loss of thousands of jobs would dent the UK’s employment rates as well as domestic sentiment.
Data is set to be quiet until Wednesday, with tomorrow’s sole release being UK’s BBA mortgage approvals report for March. The previous figure scored 45,892, with the new release currently estimated to come in around 46,500.
At the time of writing, the Euro to Pound Sterling (EUR/GBP) exchange rate was trending in the region of 0.7800, while the Pound Sterling to Euro (GBP/EUR) exchange rate traded at around 1.2820.