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EUR GBP Exchange Rate Holds Gains as European Commission Cuts UK Growth Forecasts

Update: The EUR GBP exchange rate is continuing to hold onto the morning’s gains this afternoon. The latest European Commission forecasts for the UK economy have been significantly lowered.

The commission now expects GDP for 2017 to be 1.5%, compared to previous forecasts for growth of 1.8%. Projections for 2018 are now 1.3%, while growth in 2019 is expecting to be just 1.1%.

Read original article below…

Positive German trade data is helping the Euro to post gains versus the Pound this morning, helped by weakness in Sterling thanks to housing data.

The EUR GBP exchange rate is currently trending up 0.1% at around 0.8849.

Strong German Data Boosts Euro Pound Exchange Rates ahead of ECB Policymaker Speeches

Trade data from Germany has shown another widening of the nation’s trade balance, with a smaller-than-expected decline in exports helping to push the trade surplus up from €20 billion to €24.1 billion; beating forecasts by over €1.5 billion.

This had the effect of pushing the nation’s current account surplus up from €17.8 billion to €25.4 billion.

Exports declined -0.4% on the month against predictions of a -1.3% drop, while August’s growth was revised up to 2%.

Imports, meanwhile, dropped -1% against forecasts of a slowdown from the upwardly-revised 0.8% seen in August to 0.4%.

The issue of Germany’s enormous current account and trade surplus are always contentious, with many in the Eurozone arguing the region’s powerhouse economy is not doing enough to funnel that money back into the bloc to benefit its fellow currency members.

However, signs of solid performance from the leading power in the Eurozone are nonetheless a positive sign.

Upbeat Economic Outlook from European Central Bank Boosts Euro (EUR) Exchange Rates

A positive outlook for the Eurozone economy is also supporting the Euro today, although the common currency is struggling to make particularly substantial gains against its peers.

Overall the European Central Bank (ECB) expects the economy to remain on strong form going into the New Year, stating in its latest Economic Bulletin that;

Overall, the latest economic indicators are, on balance, consistent with a continued robust growth pattern in the second half of 2017.’

The minutes further added;

Private consumption is underpinned by rising employment, which is also benefiting from past labour market reforms, and by increasing household wealth. The upswing in business investment continues to benefit from very favourable financing conditions and improvements in corporate profitability.’

This has improved market confidence in the monetary policy outlook, as the ECB had warned after recently cutting the extent of monthly asset purchases that quantitative easing could be expanded again should the economy struggle without the additional support.

Fresh Signs of UK Housing Market Weakness Weigh on Pound Sterling (GBP)

Fresh signs that the UK property market continues to cool are weighing on the Pound today, with the housing sector seen as one of the most vulnerable to Brexit-related uncertainty.

The latest survey from the Royal Institution of Chartered Surveyors (RICS) has found a growing number of estate agents are feeling pessimistic about the direction of the market.

The RICS house price balance shows a net balance of agents who saw house prices rise of just 1%, against forecasts of a slowdown from 6% to 4%.

Writing in the Independent, Economist Ben Chu notes;

More expensive homes are under significant downward price pressure, with 70 per cent of surveyors reporting that offers for homes in the £1m plus bracket are coming in below asking price.

Some 60 per cent also reported lower offers for homes on the market priced between £500,000 and £1m.’

This has had a knock-on effect on the stock market, with shares in Barratt Development and Persimmon – two of the UK’s biggest house builders – falling -2.8% and -2.7% respectively.

EUR GBP Exchange Rate Forecast; Will Pound Find Support against Euro from Friday Data Slew?

A speech from ECB official Yves Mersch and French and Italian industrial production figures are all that the Eurozone data calendar has to offer tomorrow.

This could leave Pound Sterling in the driving seat of EUR GBP exchange rates, given that a hoard of UK reports will be released in the morning.

September’s industrial and manufacturing production, construction output and trade balance data will all be released concurrently.

The National Institute for Economic and Social Research (NIESR) GDP estimate for the three months to October will follow early in the afternoon.

It seems likely that much GBP volatility will be caused by the data dump; forecasts are currently mixed, but the trade deficit is set to improve, which will be good news for Chancellor Philip Hammond as he prepares to deliver his Autumn Budget on 22nd November.