- Pound Euro Exchange Rate Weak near 1.15 – Pair rises slightly from lows on Wednesday
- Eurozone PMIs Impress – Other Eurozone data also solid
- GBP Forecast: UK Growth Data on Thursday – Likely to influence Pound movement
- EUR Forecast: Draghi Holds Speech Today – Investors hope he’ll react to hawkish Merkel
Pound Euro Exchange Rate Slightly Weaker after Draghi Speech
European Central Bank (ECB) President Mario Draghi’s Wednesday speech wasn’t hugely influential, but did leave the Pound Euro exchange rate slightly weaker on Wednesday afternoon. GBP EUR trended just below 1.16 at the time of writing this update.
Draghi repeated familiar lines that the ECB would not be altering its course on monetary policy any time soon. However, Draghi reflected recent market optimism slightly by saying that the Eurozone’s economic recovery was increasingly solid.
Sterling has the potential to be influenced by UK Gross Domestic Product (GDP) projections on Thursday. However, if GDP comes in at 0.3% quarter-on-quarter and 2.1% year-on-year as forecast GBP EUR is unlikely to see a major shift in direction.
[Previously updated 12:53 BST 24/05/2017]
While the Pound Euro exchange rate briefly recovered to above the key level of 1.16 on Wednesday morning, the pair struggled to hold this level amid anticipation for a speech from the ECB’s Mario Draghi.
Sterling has recovered from its worst levels but remains limp due to a lack of strong UK data so far this week.
The Euro, on the other hand, has seen plenty of strong ecostats, including Wednesday’s German consumer confidence survey for June from GfK.
Confidence was predicted to remain at 10.2, but instead improved to 10.4, indicating that citizens in the Eurozone’s biggest economy were currently more confident than expected.
[Published 06:00 BST 24/05/2017]
After Monday’s hawkish comments from German Chancellor Angela Merkel, the Pound Euro exchange rate dropped and investors began to speculate that there may be some kind of follow-up statement from European Central Bank (ECB) President Mario Draghi on Wednesday.
GBP EUR has trended lower so far this week, opening at the level of 1.1632 before hitting a low of 1.1529 on Tuesday morning. This was the pair’s lowest level since the end of March.
Pound (GBP) Fails to Benefit from ‘Dementia Tax’ U-Turn
Demand for the Pound remained mixed throughout Tuesday as attempts from UK Prime Minister Theresa May to damage control on the Conservative party’s controversial social care proposals failed to substantially ease election uncertainty.
The Conservative manifesto contained plans to charge elderly UK citizens for healthcare if they had assets totalling over £100k.
As the elderly make up a key part of the Tory demographic, this didn’t go down so well and the Conservative polling lead over Labour dropped from 20 points to around 9 points in just a week.
To markets, the possibility that the Conservatives could only win a slim majority or even lose to Labour became apparent for the first time in the election campaign.
While a Tory win is still seen as highly likely, the speed at which the gap between Conservatives and Labour has thinned has been the main concern for GBP traders this week and as a result Sterling may not see a relief rally unless the Conservative lead widens again.
Tuesday’s UK data also disappointed, weighing on Sterling’s recovery chances.
April’s public sector net borrowing results revealed an unexpectedly deep borrowing deficit of £-9.65b, despite being predicted to only worsen to around £-8.15b. CBI’s May distributive trades report plunged from 38 to 2.
Euro (EUR) Trades Firmly on Strong Eurozone PMIs
Demand for the Euro was generally solid on Tuesday.
The shared currency jumped on Monday due to hawkish comments from German Chancellor Angela Merkel, who stated the Euro was ‘too weak’ due to the European Central Bank’s (ECB) ultra-loose monetary policy. This was seen as an invitation to buy up the Euro.
The Euro was able to hold its ground for most of Tuesday due to the day’s strong Eurozone ecostats. Markit’s preliminary May PMIs for the bloc were published and largely beat expectations.
Germany’s manufacturing PMI notably improved from 58.2 to 59.4 despite being expected to slip to 58. Germany’s overall composite PMI improved from 56.6 to 57.3 as a result.
France’s PMIs also beat expectations, bolstering confidence for the region. Due in part to strong French and German PMIs, the Eurozone bloc’s PMIs improved from 56.7 to 57 in manufacturing and held at a solid 56.8 in its composite print.
The day’s other data was also optimistic. Germany’s final Q1 Gross Domestic Product (GDP) results came in at 0.6% quarter-on-quarter and at 1.7% year-on-year. This made Germany one of the fastest growing major economies of 2017 so far.
Ifo’s German business confidence surveys for May and France’s business confidence data from May also beat expectations.
Pound Euro Forecast to react if ECB’s Draghi Shifts Gears
While Wednesday’s session won’t see as much influential data as Tuesday, the Euro may be influenced by Eurozone data and comments from European Central Bank (ECB) officials throughout the day.
GfK will publish its June consumer confidence survey data for Germany in the morning, followed by a speech from ECB official Peter Praet.
Then in the afternoon, ECB President Mario Draghi will hold a speech. After Monday’s comments on the Euro and ECB from German Chancellor Merkel, some investors have speculated that Draghi may respond.
If he does, the Euro is highly likely to react. If Draghi agrees with Merkel that the Euro is too weak for example, the shared currency is likely to soar. However, if he instead focuses on defending the bank’s loose monetary policy from Merkel the Euro will weaken.
He could also of course simply brush off her comments, which would have minimal effect on the Euro.
As for the Pound, Sterling could recover from its lows on Wednesday as markets cool from general election jitters. GBP investors are likely to wait for Thursday’s UK Gross Domestic Product (GDP) results before moving on Sterling.
However, if more election polling shows the Conservative lead against Labour thinning, the Pound Euro exchange rate could have more weakness in the way.