- EUR GBP – Will ‘Brexit’ continue to hamper Sterling?
- German ZEW Survey Ahead – Euro likely to gain if index shows improvement.
- UK CPI Report Due on Tuesday – Pound May rally as analysts predict rise in inflation.
After an eventful week of trading following Prime Minister Theresa May’s first interview of 2017 will next week see the EUR GBP exchange rate stabilise or will the growing concerns of ‘Brexit’ drive the Pound even lower?
Euro Pound (EUR GBP) Movement Likely be dictated by ‘Brexit’ Sentiment
The Euro Pound (EUR GBP) exchange rate may see further improvements next week depending on whether the Pound is able to shake off some of the negative ‘Brexit’ sentiment that it has accrued over the last week.
The main concern for investors at the moment appears to be the lack of clarity from the UK government, as it seems unable to state whether it will be trying to retain access to the single market normally putting out a vague statement about getting the ‘best deal for Britain’ when pressed by the media.
While Theresa May announced that she will making a speech on Tuesday to speak about how she wishes to approach for leaving the EU, investors do not expect this to fully outline the government’s plans for ‘Brexit’, likely leaving the cloud of doubt to continue lingering over Sterling.
One glimmer of hope for the Pound could come in the form of a Supreme Court judgement as cabinet members reportedly believe that they will lose their case, preventing the government from triggering Article 50 and beginning the formal ‘Brexit’ process without a vote in parliament.
Investors believe that if a bill to invoke Article 50 is made to go through parliament, Labour MPs and some Conservative backbenchers would block the motion until assurances that the government would seek to stay in the single market were made.
German ZEW Survey May Bolster Euro
The Euro may climb further on Tuesday with the release of the latest ZEW Economic Sentiment Index in Germany.
The index, which surveys financial experts throughout Europe for their medium-term forecasts on Germany’s economic outlook, is expected to rise in January thanks to the recent uptick in the German economy and rising optimism in the New Year.
Analysts expect it will rise past its current level of 13.8 where it has held for past two months, reaching its highest levels since June when it collapsed due to the shock result of ‘Brexit’.
Sterling May Rally on Inflation Data
The Pound may also attempt to rally on Tuesday however as the UK releases its latest Consumer Price Index.
Some economists forecast that the UK’s inflation rate will jump from 1.2% to 1.5% in December as the weaker Pound causes prices to rise.
The data could also provide a further boost for GBP as investors speculate that the surge in inflation could also lead to the Bank of England (BoE) raising interest rates sooner than expected as the Monetary Policy Committee said at its latest meeting;
‘Monetary policy could respond, in either direction, to changes to the economic outlook as they unfolded to ensure a sustainable return of inflation to the 2% target.’
However there are concerns that the accelerated rate of inflation may have a negative impact on the economy as growth is dented by a drop in consumer spending as the pressures of the rising inflation rate are compounded by expected price hikes in late January as retailers renegotiate with suppliers following the post ‘Brexit’ Sterling crash.
Current Interbank Exchange Rates
At the time of writing the EUR GBP exchange rate was trending around 0.87 and the GBP EUR exchange rate was trending around 1.14.