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EUR GBP Exchange Rate Forecast: Will ZEW Surveys be Impactful this Week?

  • EUR GBP Exchange Rate Forecast to Struggle as German Bonds Set to Resume Rally – Reduced yields to limit impact of ECB asset purchases  
  • Pound Sterling (GBP) Exchange Rates Forecast to Fluctuate – EU referendum uncertainty to provoke massive price swings
  • GBP EUR Exchange Rate to Swing Significantly – Brexit jitters likely to negatively impact both currencies
  • Will Domestic Data be Impactful? – German ZEW Economic Sentiment survey may cause movement

Given that all eyes will be looking ahead to Thursday’s EU referendum, there is a high likelihood that domestic data will have a muted impact on the EUR GBP exchange rate forecast.

With that said, however, Tuesday’s German ZEW Economic Sentiment survey has potential to cause  Euro volatility, not least because of the potential negative impact Brexit uncertainty may have had.

Monday is fairly devoid of any notable publications, with UK house price figures and the Eurozone’s construction output numbers unlikely to have much impact.

EUR GBP Exchange Rate Forecast: German Bonds Predicted to Rally, Single Currency Forecast to Decline

Last week the Euro came under increased downward pressure as German bonds rallied in the face of EU referendum uncertainty.

‘Continued nervousness ahead of the looming EU referendum looks set to ensure investors plump for the safety of bunds,’ said Nick Stamenkovic, a bond strategist in Edinburgh.

As bonds rally the yields are reduced. This is thought to significantly undermine the impact of the European Central Bank’s (ECB) asset purchase program.

‘The ECB needs to solve this,’ Kempen’s Kim Lubbers said. ‘It needs to say “we’re going to buy below minus 0.4 percent”, or they need to relax the capital constraints. I think they’ll see what happens after the Brexit vote and probably do something.’

Whilst domestic data is unlikely to have as marked an impact with trader focus dominated by the Brexit vote and the bonds market, Tuesday’s German ZEW Economic Sentiment survey may be of interest.

If sentiment is reduced it will likely be connected to the uncertainty surrounding the EU referendum. This will add further pressure on the Euro.

However, if sentiment is shown to have improved, the impact of Brexit jitters would have been less-than-anticipated, which may see investors pull away from the safety of sovereign debt.

Pound Sterling (GBP) Exchange Rates Forecast to Reach Record-High Levels of Volatility

Prior to the suspension of EU referendum campaigning following the horrific murder of Lawmaker Jo Cox, Sterling had reached record-high levels of volatility.

Trader uncertainty is the root cause, with investors becoming increasingly reactionary to any developments in the EU referendum debate.

Now that EU referendum campaigning has resumed, and with the vote just days away, implied Sterling volatility is forecast to reach record levels. The EUR GBP exchange rate is among those likely to be most affected.

The uncertainty regarding the potential for Brexit and the implications following a vote to leave the EU are the main reasons for the dire warnings from countless financial institutions.

‘If we do see the probability of exit continue to rise, then volatility will make new highs and particularly not just short-dated volatility, but long-dated volatility as well,’ said Adam Cole of Royal Bank of Canada in London. ‘It opens up a very long period of uncertainty where it’s not clear what the UK’s relationship with the rest of Europe is going to be.’

British ecostats are not expected to have much of an impact on Sterling exchange rates this week. With that said, however, the Bank of England’s (BoE) second additional ILTR operation may cause movement.

This is because the ‘Indexed Long Term Repo’ operation will determine if UK banks can withstand the potential economic shock of a Brexit vote.

The EUR GBP exchange rate closed Friday’s session at 0.7851, closer to the weekly low of 0.7845 than the high of 0.7982. Expect significant exchange rate movement this week.