- Data Boosts EUR GBP – Investors impressed by jump in consumer confidence.
- UK Public Borrowing Rises – Increased borrowing weighs on Pound.
- Gfk Consumer Survey May Strengthen Pound – Improved sentiment could bolster investor confidence.
The EUR GBP exchange rate rose on Wednesday following a better than expected Eurozone Consumer Confidence report.
Euro Pound (EUR GBP) Rises as Consumer Confidence Jumps
The Euro Pound (EUR GBP) exchange rate was bolstered yesterday afternoon as rising confidence in the Eurozone caused the single currency to appreciate.
Markets were impressed as consumer sentiment rose from -6.1 to -5.1 in November, outpacing predictions that it would see a far more modest rise to -6.0, with the rise also marking the survey’s strongest reading since April 2015.
The rise has been attributed to steady improvements across the economy, with key figures such as inflation and employment rising. As Economist Howard Archer at IHS Markit explains;
‘Consumer confidence is now at a very decent level compared to long-term norms. Consumers across the Eurozone are currently benefiting from pretty decent fundamentals overall, notably including higher employment and still limited inflation.’
The survey is a good indicator that consumers expect economic prospects to improve next year, although Archer also warned that the political landscape in Europe could cause problems;
‘Furthermore, consumer confidence in the Eurozone could very well be pressurised by increasing political uncertainty over the coming months.’
Pound Feels Drag of Increased Public Borrowing
The Pound’s fall was also driven by the latest figures for the UK’s Public Sector Borrowing as the UK government was forced to borrow £12.21bn in November in order to balance the books. This was a dramatic rise from £4.32bn the previous month and was higher than forecasts that it would rise to £11.3bn.
Some investors were upbeat about the data as it showed an improvement over the same point last year and crucially mean that public spending remains on track to meet Chancellor Philip Hammond’s revised targets to reach a small public deficit by 2021.
However this still brings the UK’s national debt to a record high of £1.655 trillion and caused concerns that UK tax receipts will fall in 2017. As Suren Thiru, head of economics at the British Chambers of Commerce (BCC) explained;
‘2017 is likely to be a challenging period for the UK’s public finances, with economic growth likely to soften, which will hamper the UK’s ability to generate tax receipts.’
Also weighing on Sterling was the Office for Budget Responsibility’s (OBR) forecast that the challenges of ‘Brexit’ will cause the UK government to borrow an additional £122bn over the next five years, forcing the Chancellor to revise his deficit targets once again.
EUR GBP Exchange Rate Forecast: Both Markets to Release Gfk Data by End of the Week
The EUR GBP exchange rate may drop overnight if Gfk reports a rise in the UK’s Consumer Confidence Survey, although most analysts currently predict that it hold at -8 in December as growing concerns over ‘Brexit’ weighs on sentiment.
Meanwhile Germany will release its own consumer confidence data on Friday, which may cause the Euro to slide as analysts predict that it will drop from 9.8 to 9.7 in January, although the Eurozone’s recent bump in confidence could cause figures to unexpectedly rise.
The Euro is also likely to heavily impacted by the ongoing situation with Monte dei Paschi, with Italy’s third largest bank looking likely to be bailed out by the government by the end of the week after Qatar’s sovereign wealth fund appears to have pulled out of investing in the world’s oldest bank.
Current Interbank Exchange Rates
At the time of writing the EUR/GBP exchange rate was trending around 0.84 and the GBP/EUR exchange rate was trending around 1.18.