- EUR GBP Drops after ‘Brexit’ Speech – Markets react positively as PM finally releases her plans for leaving the EU.
- Eurozone Inflation Rises – Euro mounts recovery as inflation closes in on ECB targets.
- Pound Strengthened by Employment Data – Wages rise while jobless numbers shrink.
The EUR GBP exchange rate plummeted from a two-month high on Tuesday as the UK Prime Minister Theresa May outlined her plans for ‘Brexit’.
However, the pairing did go on to recover some of these losses as initial enthusiasm for May’s ‘Brexit’ speech waned somewhat. The Euro Pound exchange rate had returned to trending in the region of 0.8690 as Wednesday’s European session progressed.
May’s Speech Causes Euro Pound (EUR GBP) to Nosedive
The Euro Pound (EUR GBP) exchange rate tumbled yesterday afternoon as markets finally got an idea of how the UK government plans to leave the EU.
Sterling felt the drag of ‘Brexit’ uncertainty for months before the speech as the Prime Minister refused to release any details on how she planned to approach ‘Brexit’ negotiations, causing speculation that the government itself was unsure how to precede.
While markets did not agree with everything the PM said – particularly her announcement that Britain would be leaving the single market- investors were relieved to finally have some clarity on how things would look moving forward.
In terms of positives taken from the speech, traders chose to focus on May’s announcement that both MPs and Peers would be given a vote on the final terms of ‘Brexit’. This provided some hope that the government’s ‘hard Brexit’ approach could be overturned by opposition MPs and Tory backbenchers, although May was clear that they would not be able to block ‘Brexit’ itself. As ‘Brexit’ Secretary David Davis confirmed later;
‘The referendum last year set in motion a circumstance where the UK is going to leave the European Union, and it won’t change that.’
Eurozone Inflation Drives Euro Recovery
The Euro began to mount a recovery this morning thanks to an impressive rise in the Eurozone’s latest Consumer Price Index.
The index reading showed that inflation in the Eurozone exploded in December, nearly doubling as it rocketed up from 0.6% to 1.1%, its highest rate since September 2013.
Investors reacted positively to the news as it not only indicated an improvement in the Eurozone economy but it also made notable movement towards reaching the European Central Bank’s (ECB) target of a 2% inflation rate, leading to speculation that the ECB will not seek to extend its quantitative easing programme even further.
Pound Bolstered by Employment Data
The Pound was also strengthened by the latest UK unemployment figures as the Office for National Statistics (ONS) said that jobless numbers dropped by 52,000 in the three months through to November.
Although this left the unemployment rate at an 11 year low of 4.8%, markets were upbeat following a rise in wages as average earnings rose from 2.6% to 2.8% in November, beating expectations that the figure would remain unchanged.
The number of people claiming unemployment benefits also saw an improvement as claimants declined by 10,100, reaching the best levels since January of last year.
EUR USD Exchange Rate Forecast: ECB Interest Rate Decision Unlikely to Improve Euro
The ECB will meet for its latest policy meeting tomorrow but with policymakers almost guaranteed to vote to hold interest rates as 0% it is unlikely to have much impact on the EUR GBP exchange rate.
Meanwhile the Pound could improve on this week’s gains on Friday following the release of the UK’s latest retail figures, with sales expected to have risen from 6.6% to 7.6% in December as consumers seek to price up items before an expected hike in prices at the end of January as retailers renegotiate with suppliers.
Current Interbank Exchange Rates
At the time of writing the EUR GBP exchange rate was trending around 0.86 and the GBP EUR exchange rate was trending around 1.15.