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EUR/GBP Exchange Rate Dips Negative as UK Inflation Remains Impervious to ‘Brexit’ Fears

  • UPDATE: Investors relieved as UK inflation holds steady despite referendum uncertainty
  • ‘Brexit’ Poll Shows Huge ‘Leave’ Lead – traders gripped by fears of a ‘Brexit’ vote
  • ECB Stimulus Bets Drop – Jens Weidmann says ECB should hold off on more stimulus
  • ‘Remain’ Campaign Salves Confidence – Gordon Brown, Hilary Benn and Andrew Tyrie for ‘In’ camp
  • Referendum Forecast to Overshadow Data – Relief that UK CPI disappointment wasn’t worse

Monday saw traders reacting to a weekend poll that spelled disaster for the ‘Remain’ campaign, allowing the Euro to Pound Sterling (EUR/GBP) exchange rate to trend bullishly.

Pound (GBP) Recovers after CPI Relief

The latest consumer price data from the UK may have disappointed forecasts, showing no change in inflationary pressures, yet the figures have still been enough to lift investor spirits. Traders had feared that the approaching referendum uncertainty would have had a worse impact upon consumer spending, so the fact that inflation seems to have remained fairly impervious has softened fears.

Euro (EUR) Advances as ECB’s Weidmann Dismisses Possibility of Additional Monetary Loosening

The Euro managed to trade bullishly yesterday, against a background of market turbulence. Chinese data and concerns over the potential for a ‘Brexit’ saw stocks and commodities fall, helping the Euro to gain some ground on safe-haven demand. The fact that the markets have all-but ruled out further policy action from the Federal Reserve at this week’s interest rate decision meeting also aided the Euro thanks to the negative correlation between EUR/USD.

Further aiding the Euro were comments from European Central Bank (ECB) policymaker and German Bundesbank President Jens Weidmann, who talked down the likelihood of further stimulus from the ECB in the short-term. He told a conference in Frankfurt that the ECB had a medium-term inflation goal and that doing so allowed them to take the time to assess the impact of previous monetary policy measures before committing to further action.

Euro gains softened late afternoon as the Pound began to recover, with EUR/GBP closing the session trading around 0.7915, down from a near nine-week high.

‘Brexit’ Poll Crashes Pound Sterling (GBP) Before ‘Remain’ Campaigning Helps Recover Losses

A new ORB poll showed that the ‘Leave’ campaign was 10% ahead of the ‘Remain’ campaign amongst voters when it was released on Friday evening. The Pound reacted as soon as trading restarted after the weekend, slumping on the heightened possibility of a ‘Brexit’.

According to ETX Capital’s Head of Trading, Joe Rundle;

Momentum is behind the Vote Leave camp as polls seem to show more support for Brexit than at any point in the campaign so far. We’ve seen heavy selling and shortened our Brexit market price from over 80% – implying a one-in-five chance of Britain leaving the EU – to 66%, which indicates a one-in-three chance of Brexit.

Anxiety regarding the referendum was so intense yesterday that survey compiler ICM’s website crashed just minutes before the company was apparently set to release its latest findings due to overwhelming traffic. The site remained down from 12.30 – when rumour said the poll was scheduled to be released – until beyond the close of trade.

However, a day’s hard campaigning by Britain Stronger in Europe seemingly help to patch trader confidence. Gordon Brown and Shadow Foreign Secretary Hilary Benn made speeches. The latter’s could be seen to have a significant impact upon sentiment; Benn gave a moving speech that some credit with encouraging MPs to vote in favour of airstrikes against Syria, so his ability with rousing rhetoric is well-established. Further support came from an announcement that the Commons Treasury Committee Chair, Andrew Tyrie, would be supporting a vote for the UK to remain a part of the European Union.

GBP/EUR ended the day down -0.4%, trading in the region of 1.2611.

Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast: Will ‘Brexit’ Developments Overshadow UK Inflation Data?

Today holds several data releases which could have an impact upon the EUR/GBP pairing, although there is a chance that market sentiment will continue to dominate both assets.

The UK is set to release the latest consumer price index, which is anticipated to show a 0.1% uptick on the previous monthly and annualised figures, reaching 0.4% and 1.3% respectively. If ICM release their poll data tomorrow, this could overshadow the latest CPI figures.

Eurozone industrial production figures are predicted to show a strong increase in sector activity, with a 1.4% year-on-year rise expected in April after March’s 0.2% growth.

Also potentially impacting the Euro will be the US advance retail sales figures for May. The predicted slowdown from 1.3% to 0.3% could significantly weaken the US Dollar, pushing the Euro up thanks to the inverse correlation between the two currencies.

The Euro to Pound Sterling (EUR/GBP) exchange rate trended between 0.7882 and 0.7986 during yesterday’s European session.