- ‘Brexit’ Uncertainties Drag on Pound – Traders fear a ‘hard Brexit’.
- Euro Bounces on ECB Speculation – ECB rumoured to be tapering QE.
- GBP Awaits Friday’s Data – A slew of domestic data is due on Friday.
- Analyst Warns of EUR GBP Parity – UBS says it can’t be ruled out.
The EUR GBP exchange rate resumed its climb today, reaching a new five-year high after briefly flattening out yesterday as strong domestic data from the UK boosted confidence in the Pound.
Pound Unable to Maintain Wednesday Gains
The Pound’s (GBP) recovery on Wednesday proved to be short lived, as ‘Brexit’ returned to dominate market sentiment earlier today as focus again fell on the recent announcement that Prime Minister Theresa May would invoke Article 50 of the Lisbon Treaty by the end of March 2017. The PM’s remarks put the Pound into a tailspin against the Euro (GBP EUR) at the beginning of the week and the pairing’s downtrend has only continued.
Investors are currently concerned that UK politicians are pursuing a ‘hard Brexit’ that will see the UK government relinquish access to the single market in exchange for stronger immigration controls, causing Sterling to drop as they fear that British businesses may struggle if access is lost.
Euro (EUR) Exchange Rates Boosted by Speculation over ECB Plans
The Euro has risen further against the Pound (EUR GBP) thanks to rumours that the programme, helping to bring an end to the aggressively low interest rate policy that the ECB has been following.
This policy was put under the spotlight recently as the low interest rates were blamed for low profitably in European Banks and for helping to cause the Deutsche Bank crisis which has rocked the Eurozone over the last couple of weeks.
Pound (GBP) Looks to Friday’s Data for Respite
As Pound Sterling (GBP) exchange rates struggling to stay above water, investors will be hoping that the slew of domestic data to be released Friday will prove to be a lifeline. Fortunately for the Pound the forecasts are looking quite good for the UK.
Both the Halifax house price and industrial production report are predicted to show reasonable growth for the months of September and August respectively. While the manufacturing production data is forecast to spike from -0.9% to 0.4%, which will hopefully provide a healthy boost for the Pound.
EUR GBP Exchange Rate Could Reach Parity Next Year
With the possibility of a ‘hard Brexit’ likely to remain a major concern for traders there is a good chance that any gains for Sterling may end up being nothing more than a ‘dead cat’ bounce, as ‘Brexit’ fears quickly absorb any positive sentiment for the Pound.
This is in the face of warnings from the Head of UK rates strategy at UBS John Wraith that the Pound could reach parity with the Euro sometime next year as official ‘Brexit’ negotiations take place.
Meanwhile there is little to propel the Euro any higher this week as only one small piece of Eurozone data remains, instead traders are likely to look towards next Tuesday’s release of the Eurozone Economic Sentiment survey.
Current Exchange Rate
At the time of writing the EUR/GBP exchange rate was trending around 0.8811 and the GBP/EUR exchange rate was trending around 1.1350.